Supply chain constraints and the predictability of the conditional distribution of international stock market returns and volatility

Elie Bouri, Oguzhan Cepni, Rangan Gupta and Ruipeng Liu

Economics Letters, 2025, vol. 247, issue C

Abstract: This paper analyses the effect of supply constraints on international stock market volatility, while also considering its effect on stock returns. Using a higher-order nonparametric causality-in-quantiles test and daily data for China, France, Germany, Italy, Spain, the United Kingdom, the United States, and overall Europe, we find strong evidence of Granger causality flowing from supply constraints to the entire conditional distribution of stock returns and volatility. Notably, supply constraints positively predict stock volatility. This positive predictability remains robust when alternative measures are used, including monthly realized variance and different metrics of supply constraints. Our findings have significant implications for investors and policymakers.

Keywords: Supply constraints; Stock markets volatility; Higher-order nonparametric causality-in-quantiles test (search for similar items in EconPapers)
JEL-codes: C21 C22 E23 G15 (search for similar items in EconPapers)
Date: 2025
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Supply Chain Constraints and the Predictability of the Conditional Distribution of International Stock Market Returns and Volatility (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176525000138

DOI: 10.1016/j.econlet.2025.112176

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