A momentum threshold model of stock prices and country risk ratings

Evidence from BRICS countries

Tengdong Liu, Shawkat Hammoudeh, Mark Andrew Thompson

Research output: Contribution to journalArticle

13 Citations (Scopus)

Abstract

We develop a multivariate momentum threshold autoregression (MTAR) model that examines the relationship between stock markets for each of the five BRICS countries - Brazil, Russia, India, China and South Africa - and changes in their economic, financial and political country risk ratings in response to positive and negative shocks. The findings suggest that the long-run and short-run relationships between the stock market and the three risk ratings variables of each country respond asymmetrically to shocks for all of the five BRICS, but at different speeds and depending on the direction of the shock, underpinning the differences in profit opportunities among these countries. The adjustment is faster for the individual BRICS following a positive shock (than a negative shock), except for Russia. Despite their grouping, the stock markets of the five BRICS countries are dissimilar and can add to diversification benefits in portfolios.

Original languageEnglish (US)
Pages (from-to)99-112
Number of pages14
JournalJournal of International Financial Markets, Institutions and Money
Volume27
Issue number1
DOIs
StatePublished - Dec 1 2013

Fingerprint

Rating
Threshold model
Country risk
Price risk
Stock prices
BRICS countries
Momentum
Stock market
Russia
Financial economics
Grouping
Profit
Threshold autoregression
Short-run
Political economics
Diversification benefits

Keywords

  • Asymmetry
  • Convergence
  • Country risk ratings
  • Multivariate MTAR model

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

A momentum threshold model of stock prices and country risk ratings : Evidence from BRICS countries. / Liu, Tengdong; Hammoudeh, Shawkat; Thompson, Mark Andrew.

In: Journal of International Financial Markets, Institutions and Money, Vol. 27, No. 1, 01.12.2013, p. 99-112.

Research output: Contribution to journalArticle

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