Oil prices and sectoral stock returns in the BRICS-T countries: A time-varying approach

This paper investigates how exchange rates and oil prices have affected sectoral stock returns in the BRICS-T countries over the period from 2 January 2001 to 22 March 2021. Following the estimation of a benchmark linear model, Bai and Perron (2003) tests are carried out in each case to identify structural breaks, and then a state-space model with time-varying parameters is also estimated. The analysis shows that oil prices have a significant, positive effect on the energy sectors of all BRICS-T countries except India; a negative one on the industrial sectors of all countries except Turkey; a negative one on the financial sectors of Brazil, Russia, India, and South Africa; a negative one on the transportation sectors of India and Turkey and a positive one on that of Russia; finally, the most significant effect is on the chemicals sector, though it varies across countries. The subsamples and time-varying estimates indicate that exchange rate returns have a larger influence than oil price returns. Because energy-dependent sectors are vulnerable to global volatility, appropriate energy regulations should be implemented to reduce risk.