Do ESG Indices across BRICS enjoy any dynamic relation: Empirical analysis using VARMA-GARCH Spillover Approach

Abstract

The present study investigates the causal and spillover dynamics concerning ESG indices across four BRICS nations to understand the responsiveness of these nations towards Green Finance and Green Economy, a collective vision of the BRICS nations. The study covers five years, from April 2018 to March 2023, and closing price data has been collected from the MSCI ESG Leaders Index Series for four BRICS nations. Brazil, India, China, and South Africa. The model employed was the VARMA-GARCH Spillover Model, where spillover was measured through residuals. The model measures both mean and volatility spillover across BRICS for three BRICS economies, viz. South Africa, China, and Brazil, the variant used was VARMA (1,1) -GARCH (1,1), while for India, the model VARMA (1,2)-GARCH (1,1) was considered. The additional MA term for India was warranted to make the Spillover model for India free from serial correlation. The study also tested for causality, and with all variables being I(1) stationary, the model selected was Toda and Yamamoto (1995) modified ‘F’ causality. The model diagnostics considered for the study included ARCH effects and Serial Correlation. Amongst the study results, mean spillover was not seen. However, the volatility spillover from both India and China towards South Africa and again from India towards China was seen in the study results. No other spillover was noticed amongst any other BRICS nations. Further, ARCH and GARCH terms of all the countries in the volatility equation were added to <1, showing persistence to go away over time. All the variables were stationary at I(1), as seen from the ADF breakpoint unit root test. The causality results showed unidirectional movement from ESG India to ESG China and ESG Brazil indices. The results do not give any concrete evidence of any collective responsiveness of the four BRICS nations towards Green Finance. Leaving apart select volatility spillovers towards South Africa, the integration through spillover concerning ESG indices appears somewhat limited. These results somewhat contrast with a study by Rehman et al. (2021), where they noticed integration among ESG indices for BRICS nations