Geopolitical Risks and the Oil-Stock Nexus Over 1899-2016

Nikolaos Antonakakis, Rangan Gupta, Christos Kollias and Stephanos Papadamou

No 201702, Working Papers from University of Pretoria, Department of Economics

Abstract: Markets are invariably influenced and affected not only by the usual array of economic and financial factors but also by uncertainty inducing shocks. Using monthly stock and oil real returns data that spans over a century, this study takes a long historical perspective on whether the time-varying stock–oil covariance, their returns and their variances are affected by geopolitical risk as encapsulated and quantified by a recently developed index (Caldara and Iacoviello, 2016). To address the issue, a VAR(p)-BEKK-GARCH(1,1) model is used. The results reported herein indicate that the geopolitical risk index introduced in the estimations triggers a negative effect mainly in case of oil returns and volatility and to a smaller degree reduces the covariance between the two markets with a time lag.

Keywords: Geopolitical Risk; Stock and Oil markets; BEKK-GARCH models (search for similar items in EconPapers)
JEL-codes: G1 G15 H56 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2017-01
New Economics Papers: this item is included in nep-ene and nep-his
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Citations: View citations in EconPapers (137)

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Journal Article: Geopolitical risks and the oil-stock nexus over 1899–2016 (2017)
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