Original Research

Volatility spillovers in equity and foreign exchange markets: Evidence from emerging economies

Tsepiso Nyopa, Sibanisezwe A. Khumalo
Journal of Economic and Financial Sciences | Vol 15, No 1 | a713 | DOI: https://doi.org/10.4102/jef.v15i1.713 | © 2022 Tsepiso Nyopa, Sibanisezwe A. Khumalo | This work is licensed under CC Attribution 4.0
Submitted: 23 October 2021 | Published: 11 November 2022

About the author(s)

Tsepiso Nyopa, Department of Economics and Economic History, Faculty of Commerce, Rhodes University, Makhanda, South Africa
Sibanisezwe A. Khumalo, Department of Economics and Economic History, Faculty of Commerce, Rhodes University, Makhanda, South Africa


Orientation: This study investigated the relationship between the equity markets and foreign exchange markets in Brazil, Russia, India, China and South Africa (BRICS).

Research purpose: This study examined the financial connectedness through volatility spillovers and co-movements among equity and foreign exchange markets in the BRICS countries to better understand market interdependencies.

Motivation for the study: The literature mainly focused on volatility transmission from developed countries.

Research approach: This research, used the Diebold and Yilmaz spillover index approach (DY index). The DY index is based on variance decompositions (VD) and impulse response functions that use a vector autoregressive (VAR) modelling framework. The study period was from 02 January 1997 to 31 December 2018.

Main findings: Shocks from the equity markets dominate the foreign exchange markets, while foreign exchange markets dominate their equity markets at an individual level. There are interdependencies between BRICS equity markets and foreign exchange markets, except for China, whose markets are relatively isolated from other BRICS markets. Brazil is the largest contributor of volatility spillovers to other BRICS markets. The South African rand is the most integrated within BRICS.

Practical implications: Foreign exchange markets provided better diversification opportunities. Significant increases in volatility spillovers associated with turmoil periods in domestic and global markets provide evidence for contagion effects in BRICS markets.

Contribution: The current account (flow-oriented model) is crucial in exchange rate determination at the individual country level. In contrast, the capital account (stock-oriented model) is a significant factor in exchange rate determinations at an aggregate level.


BRICS; DY spillover index; equity market; foreign exchange rate market; volatility spillover; contagion; financial connectedness


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