Dynamic linkages between developed and BRICS stock markets: Portfolio risk analysis

- We examine the time-varying linkages between BRICS and developed stock markets.
- We analyze time-varying hedge ratios based on the bivariate DCC-FIAPARCH model.
- We assess diversification benefits and downside risk in developed-BRICS stock portfolios.

This study examines the dynamic correlations and portfolio diversification between the major developed and BRICS stock markets. The results reveal a significant variability in the time-varying conditional correlations between these markets during upturn and downturn periods. We underline the importance of overweighting the optimal portfolios with stocks from the developed countries over those from the BRICS. Finally, we demonstrate the usefulness of using developed market stocks in the BRICS stock portfolio risk management.