Exchange Rate Dynamics and Its Spillover Effect among the BRICS Nations

Mr. Sourav Chakraborty; Prof. Bhaskar Goswami; Ms. Mukulika Roy; Ms. Ashima Karmakar

doi:https://doi.org/10.17492/jpi.mudra.v12i1.1212502

Submit Manuscript Login / Register Subscribe

Home Page

Editorial Board Members

Mission, Aims & Scope

Current Issue

Exchange Rate Dynamics and Its Spillover Effect among the BRICS Nations

Sourav Chakraborty, Bhaskar Goswami, Mukulika Roy, Ashima Karmakar

https://doi.org/10.17492/jpi.mudra.v12i1.1212502

Article has been added to the cart.View Cart (0)

Published Online: May 03, 2025

Author Details ( * ) denotes Corresponding author

1. * Sourav Chakraborty, PhD (Pursuing), Department of Economics, The University of Burdwan, Burdwan, West Bengal, India (chakrabortysouraveco1996@gmail.com)

2. Bhaskar Goswami, Professor, Department of Economics, The University of Burdwan, Burdwan, West Bengal, India (bgoswami@eco.buruniv.ac.in)

3. Mukulika Roy, PhD Scholar, Department of Economics, The University of Burdwan, Burdwan, West Bengal, India (mukulikaroy451@gmail.com)

4. Ashima Karmakar, PhD Scholar, Department of Economics, The University of Burdwan, Burdwan, West Bengal, India (karmakar.ashima96@gmail.com)

The recent financial crisis in the United States, followed by Europe’s debt crisis, has significantly impacted global economic performance, particularly in the financial sector. Globalization has led to increased interdependence and growth in international trade. This paper examines exchange rate return spillovers and connectedness among BRICS countries’ currencies against the US Dollar using Diebold and Yilmaz’s methodology. By analyzing weekly data from April 2004 to March 2023, we find low spillover levels between these currency pairs. The Indian Rupee is identified as a net transmitter, while the South African Rand is a net receiver. Notably, the Indian Rupee and Chinese Yuan show no Granger causality with other currencies, whereas the Russian Ruble, Brazilian Real, and South African Rand display univariate relationships. These insights can aid traders, portfolio managers, policymakers, and market participants in identifying volatility sources and making informed investment decisions.

Keywords

Exchange Rate Spillover, Cointegration, Granger Causality, Impulse Response Function

Agren, M. (2006). Does oil price uncertainty transmit to stock markets? (No. 2006: 23). Working Paper.
Ahmad, K. M., Ashraf, S. & Ahmed, S. (2005). Is the Indian stock market integrated with the US and Japanese markets? An empirical analysis. South Asia Economic Journal, 6(2), 193-206.
Bal, G. R., Manglani, A. & Deo, M. (2018). Asymmetric volatility spillover between stock market and foreign exchange market: Instances from Indian market from pre-, during and post-subprime crisis periods. Global Business Review, 19(6), 1567-1579.
Becketti, S. & Sellon, G. H. (1989). Has financial market volatility increased? Economic Review-Federal Reserve Bank of Kansas City, 74(6), 17.
Cheung, Y. W. & Ng, L. K. (1993). Interactions between the US and Japan stock market indices. Journal of International Financial Markets, Institutions & Money, 2(2), 51-70.
Chuliá, H. & Torro, H. (2008). The economic value of volatility transmission between the stock and bond markets. Journal of Futures Markets: Futures, Options, and Other Derivative Products, 28(11), 1066-1094.
Claeys, P. & Vasicek, B. (2012). Measuring sovereign bond spillover in Europe and the impact of rating news. AQR–Working Papers, 2012, AQR12/09.
Dahir, A. M., Mahat, F., Ab Razak, N. H. & Bany-Ariffin, A. N. (2018). Revisiting the dynamic relationship between exchange rates and stock prices in BRICS countries: A wavelet analysis. Borsa Istanbul Review, 18(2), 101-113.
Das, S. & Roy, S. S. (2022). Following the leaders? A study of co-movement and volatility spillover in BRICS currencies. Economic Systems, 47(2), 100980.
Dickey, D. A. & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366a), 427-431.
Diebold, F. X. & Yilmaz, K. (2009). Measuring financial asset return and volatility spillovers, with application to global equity markets. The Economic Journal, 119(534), 158-171.
Engle, R. F., Gallo, G. M. &Velucchi, M. (2012). Volatility spillovers in East Asian financial markets: A MEM-based approach. Review of Economics and Statistics, 94(1), 222-223.
Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica: Journal of the Econometric Society, 424-438.
Gupta, P. & Mehta, A. (2023) Covid-19 and BRICS currency market spillovers: A crisis within a crisis?
Ho, L. & Huang, C. H. (2015). The nonlinear relationships between stock indexes and exchange rates. Japan and the World Economy Journal, 33, 20-27.
Li, M. C. (2007). Wealth, volume and stock market volatility: Case of Hong Kong (1993–2001). Applied Economics, 39(15), 1937-1953.
Liu, Y. A. & Pan, M. S. (1997). Mean and volatility spillover effects in the US and Pacific-Basin stock markets. Multinational Finance Journal, 1(1), 47-62.
Lütkepohl, H. (1991). Introduction to multiple time series analysis. New York: Springler-Verlag.
Maitra, D. & Dawar, V. (2019). Return and volatility spillover among commodity futures, stock market and exchange rate: Evidence from India. Global Business Review, 20(1), 214-237.
Mukhopadhyay, D. (2019). Indian stock market and macroeconomic variables: An empirical investigation based on BSE SENSEX. MUDRA: Journal of Finance and Accounting, 6(2), 13-28.
Naresh, G., Vasudevan, G., Mahalakshmi, S. & Thiyagarajan, S. (2018). Spillover effect of US dollar on the stock indices of BRICS. Research in International Business and Finance, 44, 359-368.
Pereira, T. & Lopes, R. (2020). Currency spillovers in emerging markets: Evidence from the BRICS.
Sahay, N., Gupta, N. & Rai, K. (2025). Volatility spillovers between exchange rates and stock markets in the BRICS economies: new evidence from COVID-19 and Russian Ukrainian war. International Journal of System Assurance Engineering and Management. Retrieved from https://doi.org/10.1007/s13198-025-02722-7
Sehgal, S., Rajput, N. & Deisting, F. (2013). Price discovery and volatility spillover: Evidence from Indian commodity markets. The International Journal of Business and Finance Research, 7(3), 57-75.
Sui, L. & Sun, L. (2016). Spillover effects between exchange rates and stock prices: Evidence from BRICS around the recent global financial crisis. Research in International Business and Finance, 36, 459-471.
Volosovych, V., Sørensen, B. E. & Kalemli-Ozcan, S. (2010). Deep financial integration and volatility. In 2010 Meeting Papers (No. 232). Society for Economic Dynamics.
Xiao, L. & Dhesi, G. (2010). Volatility spillover and time-varying conditional correlation between the European and US stock markets. Global Economy and Finance Journal, 3(2), 148-164.
Yang, S. Y. & Doong, S. C. (2004). Price and volatility spillovers between stock prices and exchange rates: Empirical evidence from the G-7 countries. International journal of Business and Economics, 3(2), 139.
Zhang, Y. & Li, X. (2014). Do global factors impact BRICS stock markets? A quantile regression approach. International Review of Economics and Finance, 29, 1-12.