ARTICLE IN PRESS JID: FRL [m3Gsc;November 28, 2016;9:46] Finance Research Letters 000 (2016) 1–8 Contents lists available at ScienceDirect Finance Research Letters journal homepage: www.elsevier.com/locate/frl Dynamic linkages between developed and BRICS stock markets: Portfolio risk analysis Walid Mensi a,b , Shawkat Hammoudeh c,d , Sang Hoon Kang e,∗ a Department of Finance and Accounting, University of Tunis El Manar, B.P. 248, C.P. 2092, Tunis Cedex, Tunisia b Department of Finance and Investment, College of Economics and Administrative Sciences, Al Imam Mohammad Ibn Saud Islamic University (IMSIU), P.O Box 5701, Riyadh, Saudi Arabia c Lebow College of Business, Drexel University, Philadelphia, United States d Energy and Sustainable Development, Montpellier Business School, Montpellier, France e Department of Business Administration, PNU School of Business, Pusan National University, Busan 609-735, Republic of Korea a r t i c l e i n f o Article history: Received 8 November 2015 Revised 17 October 2016 Accepted 20 November 2016 Available online xxx JEL classification: G14 G15 Keywords: Stock markets Correlations Hedge Downside risk DCC-FIAPARCH a b s t r a c t This study examines the dynamic correlations and portfolio diversification between the major developed and BRICS stock markets. The results reveal a significant variability in the time-varying conditional correlations between these markets during upturn and downturn periods. We underline the importance of overweighting the optimal portfolios with stocks from the developed countries over those from the BRICS. Finally, we demonstrate the use- fulness of using developed market stocks in the BRICS stock portfolio risk management. © 2016 Elsevier Inc. All rights reserved. 1. Introduction Financial markets have been characterized by high volatility particularly during periods of structural breaks like the recent global financial crisis (GFC) and the Eurozone sovereign debt crisis (ESDC). These markets also exhibit asymmetric behavior in response to positive and negative shocks during bull and bearish markets, which leads to portfolio re-balancing as a result of changing correlations (Mensi et al., 2014; Zhang et al., 2013). Thus, understanding the volatility behavior of stock markets during major events and crises, particularly the time-varying conditional correlations between the most important emerging markets such as the BRICS (Brazil, Russia, India, China, and South Africa) and the major developed stock markets (United States, Japan, Germany, United Kingdom and France) a key challenge for international investors and policy makers in order to be able to make sound decisions (Hammoudeh et al., 2016; Mensi et al., 2016; Yarovay and Lau, 2016). ∗ Corresponding author. Fax: +82 5818180. E-mail addresses: walid.mensi@fsegt.rnu.tn (W. Mensi), shawkat.hammoudeh@gmail.com (S. Hammoudeh), sanghoonkang@pusan.ac.kr, kang.sanghoon@gmail.com (S.H. Kang). http://dx.doi.org/10.1016/j.frl.2016.11.016 1544-6123/© 2016 Elsevier Inc. All rights reserved. Please cite this article as: W. Mensi et al., Dynamic linkages between developed and BRICS stock markets: Portfolio risk analysis, Finance Research Letters (2016), http://dx.doi.org/10.1016/j.frl.2016.11.016