Volatility spillovers from BRIC currencies to the South African Rand: insights from dynamic conditional correlation-GARCH and wavelet coherence analysis

Abstract

South Africa joined the BRICS bloc in 2010 and has since deepened its financial and trade ties with Brazil, Russia, India and China. This growing integration has raised concerns about the Rand’s exposure and vulnerability to BRIC financial markets. This study examines volatility spillovers between the Rand and BRIC currencies using dynamic conditional correlation-generalized autoregressive conditional heteroskedasticity (DCC-GARCH) model and wavelet coherence analysis on daily data from 2 January 2001 to 31 August 2023. The results show that volatility spillovers are primarily unidirectional from BRIC currencies to the Rand, particularly during periods of financial turmoil and crises. Wavelet analysis reveals these shocks as bursts of high-frequency oscillations. These insights are critical for policymakers and investors managing risk within BRICS financial markets.