Spillover effects between exchange rates and stock prices: Evidence from BRICS around the recent global financial crisis

• Spillover effects are tested between exchange rates and U.S. and BRICS stock returns.
• Exchange rates significantly impact stock returns.
• Center–periphery relations exist in U.S. and BRICS stock markets.
• Financial crisis aggravated spillover effects between exchange and stock markets.

This study examines the dynamic relationships among local stock returns, foreign exchange rates, interest differentials, and U.S. S&P 500 returns. The research countries are Brazil, Russia, India, China, and South Africa (BRICS) in the regime of managed floating exchange rate, but China manipulates the foreign exchange rate, interest rate and restricts foreign capital flows most strictly. We find significant spillover effects from foreign exchange rates to stock returns in the short-run, but not vice versa. U.S. S&P 500 shocks significantly influence stock markets in Brazil, China, and South Africa. Furthermore, there are stronger spillover effects between exchange rates and stock returns during the 2007–2009 financial crisis.

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