Study On Dynamic Dependence Of Stock Markets In Brics

As emerging economies develop unceasingly, i.e. the Brics, the global financial cooperation and development has entered a new stage. The cooperation mechanism of Brics has brought profound influence for the world economy. After the outbreak of subprime mortgage crisis, the economy of Europe and the United States recovers slowly due to the deep structural problems, while the recovery of emerging economies is gradually. It is remarkable how the subprime mortgage crisis has impacted the stock markets of the Brics. The time-varying dependence analysis of stock markets in the Brics has played roles in investment portfolios, spreading risks, studying international stock markets, making financial policy suggestions.Based on weekly market price index data from 2000 to 2013, we firstly analysis the dependence between each Brics country and secondly we analysis the dependence between the Brics and the U.S.A representing international stock markets. The method we use is the stochastic copula autoregressive model. The dependence parameter is not only time-varying but also follows a transformation of a stochastic process. By Normal copula, we use the correlation path to describe general dependence. Upper and lower tail dependences are measured by Gumbel copula and Clayton copula, which describe the dependence increasing in bull or bear market.General and tail dependence between China and Russia, Brazil, India shows that stock market risk increases in a small degree and financial contagion happens. There is no financial contagion between South Africa and other Brics countries. Stock market risks between Brazil and Russia are not significant, while other Brics countries have financial contagions. In the terms of international stock markets, only the South Africa and the U.S.A have financial contagions. Other Brics are not influenced by American stock markets during the crisis, but they affected each other stock market interactively.With the beginning of the Brics cooperation mechanism, stock market in our country is influenced by the other four countries gradually, whilst the general dependence of other four Brics countries did not change a lot. Upper and lower tail dependences between most Brics countries have a certain degree of increase. The cooperation mechanism promotes the prosperity of financial markets, but also increases the probabilities of financial infections between stock markets. Because of the difference in each country’s economic structure and the level of economic development, stock markets of China and Russia are affected by the international stock markets obviously. The impact of dependence between India, Brazil and the U.S.A made by the cooperation mechanism is lower and that between South Africa and the U.S.A is lowest.The cooperation mechanism increases the openness of China’s stock market and also increases risks in the financial market. Therefore, China should pay attention to the regulation of financial markets and strengthen the prevention of financial risks. We should establish perfect information disclosure system and internal audit system; strengthen the international cooperation in financial regulation; build comprehensive financial regulation legislations. Due to the innovation of financial products, the supervision system should be updated. The establishment of the Brics Development Bank and the reserve fund helps to maintain close cooperation between the Brics. We hope that the Brics cooperation mechanism could resist financial risks in the future.