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Risks 2018, 6(3), 94; https://doi.org/10.3390/risks6030094

Country Risk Ratings and Stock Market Returns in Brazil, Russia, India, and China (BRICS) Countries: A Nonlinear Dynamic Approach

1
Institut Supérieur de Gestion de Tunis, Université de Tunis, Tunis 2000, Tunisia
2
Department of Economics, University of Navarra, 31009 Pamplona, Spain
3
Department of Economics & Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026, USA
4
Department of Economics, University of Pretoria, Pretoria 0002, South Africa
*
Author to whom correspondence should be addressed.
Received: 5 August 2018 / Revised: 5 September 2018 / Accepted: 7 September 2018 / Published: 10 September 2018
(This article belongs to the Special Issue Measuring and Modelling Financial Risk and Derivatives)
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Abstract

This study examines the linkages between Brazil, Russia, India, and China (BRICS) stock market returns, country risk ratings, and international factors via Non-linear Auto Regressive Distributed Lags models (NARDL) that allow for testing the asymmetric effects of changes in country risk ratings on stock market returns. We show that BRICS countries exhibit quite a degree of heterogeneity in the interaction of their stock market returns with country-specific political, financial, and economic risk ratings. Positive and negative rating changes in some BRICS countries are found to have significant implications for both local stock market returns, as well as commodity price dynamics. While the commodity market acts as a catalyst for these emerging stock markets in the long-run, we also observe that negative changes in the country risk ratings generally command a higher impact on stock returns, implying the greater impact of bad news on market dynamics. Our findings suggest that not all BRICS nations are the same in terms of how they react to ratings changes and how they interact with global market variables. View Full-Text
Keywords: asymmetric responses; NARDL models; stock market returns; country risk ratings asymmetric responses; NARDL models; stock market returns; country risk ratings
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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Ben Nasr, A.; Cunado, J.; Demirer, R.; Gupta, R. Country Risk Ratings and Stock Market Returns in Brazil, Russia, India, and China (BRICS) Countries: A Nonlinear Dynamic Approach. Risks 2018, 6, 94.

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