This paper investigates the portfolio diversification possibilities between BRICS and the US stock market. Using bootstrap full-sample Granger causality and bootstrap rolling-window sub-sample Granger causality tests, we did not find evidence supporting the causal linkage between BRICS and the US stock markets; time-varying causality was observed for particular sub-samples. Our findings imply that BRICS stock markets can provide diversification possibilities for US investors most of the time; however, such opportunities become extremely limited during crisis periods. We also find that stock markets are more likely to be causally linked if they have similar business conditions, excess returns and size premiums.
- bootstrap rolling-window technique
- Granger causality
- Portfolio diversification
- structural breaks