This study examines the existence of cointegration and causality between the stock prices of BRIC countries and the US and Japan to investigate which of the BRIC countries are moved by the US and Japan, using daily data spanning from April 2002 to March 2009. Engle-Granger two-step procedure test provides evidence of a long-run relationship between the BRIC countries and the US and Japan. The results indicate that potential long-run benefits exist from diversifying the investment portfolios internationally to reduce the associated systematic risks across countries. However, in the short run, Indian stock market is dominated by the US market, Russia is dominated by Japan, and the remaining countries are dominated by neither during the time period investigated.

The world's financial markets, especially the Asian markets, have witnessed enormous changes in the past several decades. A number of empirical studies have examined long-run relationships and short-run dynamic causal linkages among the emerging Asian financial markets and major developed markets. After the October 1987 stock market crash, a large body of empirical literature on interdependence among the equity market has emerged. Most of the literature has concentrated on the dynamic linkages of the developed markets. This study examines the interdependence between the stock markets of Brazil, Russia, India, and China (BRIC) and those of the US and Japan.

One of the most significant international financial developments of the 21^st century was the opening of BRIC stock markets. As a group, BRIC have been enjoying high economic growth since its inception. BRIC have played an important role in the global financial developments. Latest estimates suggest that BRIC now hold more than 30% of world reserves. Although China is the dominant contributor, Russia, India and Brazil have also accumulated substantial reserves. BRIC's share as a destination for global Foreign Direct Investment (FDI) also continues to rise (now 15% of the global total, nearly three times higher than in 2000). BRIC's FDI outflows have also picked up (to more than 3% of the global total, a sixfold increase since 2000) as BRIC companies expand their own global presence.

Applied Finance Journal, BRIC Stock Markets, Indian Stock Market, Financial Markets, Financial Developments, Global Foreign Direct Investments, Equity Markets, Japan Markets, Asian Eeconomic Crisis, Brazilian Stock Markets, Economic Growth.