Intertemporal risk-return relationship in BRIC equity markets after the US financial crisis

Singh, Amanjot and Singh, M 2017, Intertemporal risk-return relationship in BRIC equity markets after the US financial crisis, International Journal of Law and Management, vol. 59, no. 4, pp. 547-570, doi: 10.1108/IJLMA-12-2015-0065.

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Title Intertemporal risk-return relationship in BRIC equity markets after the US financial crisis
Author(s) Singh, AmanjotORCID iD for Singh, Amanjot orcid.org/0000-0003-3575-4382
Singh, M
Journal name International Journal of Law and Management
Volume number 59
Issue number 4
Start page 547
End page 570
Total pages 24
Publisher Emerald Publishing Group
Place of publication Bingley, Eng.
Publication date 2017
ISSN 1754-243X
1754-2448
Keyword(s) BRIC
GARCH
Conditional variance
Summary Purpose This paper aims to attempt to capture the intertemporal/time-varying risk–return relationship in the Brazil, Russia, India and China (BRIC) equity markets after the global financial crisis (2007-2009), i.e. during a relative calm period. There has been a significant increase in advanced economies’ equity allocations to the emerging markets ever since the financial crisis. So, the present study is an attempt to account for the said relationship, thereby justifying investments made by the international investors.MethodologyThe study uses non-linear models comprising asymmetric component generalised autoregressive conditional heteroskedastic model in mean (CGARCH-M) (1,1) model, generalised impulse response functions under vector autoregressive framework and Markov regime switching in mean and standard deviation model. The span of data ranges from 1 July 2009 to 31 December 2014.FindingsThe ACGARCH-M (1,1) model reports a positive and significant risk-return relationship in the Russian and Chinese equity markets only. There is leverage and volatility feedback effect in the Russian market because falling returns further increase conditional variance making the investors to expect a risk premium in the expected returns. The impulse responses indicate that for all of the BRIC markets, the ex-ante returns respond positively to a shock in the long-term risk component, whereas the response is negative to a shock in the short-term risk component. Finally, the Markov regime switching model confirms the existence of two regimes in all of the BRIC markets, namely, Bull and Bear regimes. Both the regimes exhibit negative relationship between risk and return.Practical implicationsIt is an imperative task to comprehend the relationship shared between risk and returns for an investor. The investors in the emerging economies should understand the risk-return dynamics well ahead of time so that the returns justify the investments made under riskier environment.Originality/valueThe present study contributes to the literature in three senses. First, the data relate to a period especially after the global financial crisis (2007-2009). Second, the study has used a relatively newer version of GARCH based model [ACGARCH-M (1,1) model], generalised impulse response functions and Markov regime switching model to account for the relationship between risk and return. Finally, the study provides an insightful understanding of the risk–return relationship in the most promising emerging markets group “BRIC nations”, making the study first of its kind in all the perspectives.
Language eng
DOI 10.1108/IJLMA-12-2015-0065
Indigenous content off
Field of Research 15 Commerce, Management, Tourism and Services
18 Law and Legal Studies
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Persistent URL http://hdl.handle.net/10536/DRO/DU:30150415

Document type: Journal Article
Collections: Faculty of Business and Law
Department of Finance
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