Is the Fear Index Still Frightening for the New Members of BRICS? A Study on the Stock Markets and VIX Relationship

Abstract The phenomenon of globalization continues to increase the integration of stock markets over time. While this integration complicates effective portfolio diversification, it also amplifies volatility spillovers during periods of financial depression. Such spillovers predominantly flow from US markets to global markets. The BRICS bloc, with its economic objectives, holds the potential to mitigate or eliminate the influence of Western markets. This potential is likely to strengthen with the inclusion of new member countries and the other countries expected to join in the near future. This study aims to examine whether the stock market relationships of the countries that joined BRICS in 2024 with US markets have undergone any changes. In this context, the impact of the VIX on these countries' stock markets before and after their membership was analyzed using the Toda-Yamamoto test. The findings reveal that, in the pre-membership period, there was causality from the VIX to two out of the three countries under study. However, these effects disappeared in the post-membership period. The empirical findings obtained were also supported by multivariate (BEKK) GARCH models. It was determined that the risk transmission observed during the pre-membership period disappeared in the post-membership period. The study demonstrates that BRICS membership serves as a threshold that eliminates the influence of US markets on the stock markets of new member countries. This finding provides predictive insights for the stock markets of countries that are potential candidates for future BRICS membership. Moreover, this result provides significant evidence that the stock markets of newly joined countries may present an opportunity for portfolio diversification for investors.