The Spillover Effect of Global Uncertainty on BRICS Stock Markets

Using monthly data spanning from 1993 to 2021 and employing the DCC-GARCH model, this study examines the role of Economic Policy Uncertainty (EPU) as a potential exogenous factor impacting the correlation of Brazil, Russia, India, and China (BRIC) economies' stock markets, which is new to the literature. Further, this dynamic correlation series is used as a dependent variable while EPU of BRIC and USA is used as an independent variable by utilizing the autoregressive distributed lag (ARDL) model. The study finds a positive and significant short-run as well as the long-run impact of Russia's and the US's EPU on their stock markets. In other words, as the EPU of the USA increases, the correlation of BRIC with the USA Stock Market and the World Stock Market increases, suggesting minimum diversification opportunities for the investors. The study also recommends that investors diversify their portfolios by considering cross borders assets avenues to gain maximum returns and reduce portfolio risk.