Relations of the financial and energy markets in BRIC economies

Abstract

BRIC acronym has been widely used since its creation by Jim O'Neill in 2001. Numerous studies and research have emerged from the a priori integration of these four nations: Brazil, Russia, India and China, not mentioning the derived denominations after their origin where some other countries are added to the originals. The initial research question and that marked the guideline of our entire study was to reflect on the existence of a related group that can be studied and treated as a block, or, if on the other hand, we were facing 4 different economies, grouped initially just by sharing certain characteristics at a specific time.

In this study, we resolved to answer this question in a specific context: dealing with market index and oil mix variables in periods that include volatility and crisis events.

To approximate an answer, we fitted the series of study variables to Normal Inverse Gaussian distribution. Additionally, we calculated risk measures and built investment portfolios through Markowitz theory assuming different combinations of our research financial instruments.

The evidence showed possibilities for portfolio optimization through diversified instruments from the BRIC countries. Therefore, in our particular field of study, we conclude that the term of the BRIC block should be limited as a group of related countries.