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Geopolitical risks and stock market dynamics of the BRICS

Mehmet Balcilar, Matteo Bonato, Riza Demirer and Rangan Gupta

Economic Systems, 2018, vol. 42, issue 2, 295-306

Abstract: This paper examines the effect of geopolitical uncertainty on return and volatility dynamics in the BRICS stock markets via nonparametric causality-in-quantiles tests. The effect of geopolitical risks (GPRs) is found to be heterogeneous across the BRICS stock markets, suggesting that news regarding geopolitical tensions do not affect return dynamics in these markets in a uniform way. GPRs are generally found to impact stock market volatility measures rather than returns, and often at return quantiles below the median, indicating the role of GPRs as a driver of bad volatility in these markets. While Russia bears the greatest risk exposure to GPRs in terms of both return and volatility, India is found to be the most resilient BRICS nation in the group. Noting that geopolitical shocks and in particular terrorist incidents are largely unanticipated, our findings underscore the importance of a strong financial sector that can help return the market to stability and an open economy that allows local investors to diversify country-specific risks in their portfolios.

Keywords: Geopolitical risks; Stock returns; Volatility; BRICS (search for similar items in EconPapers)
JEL-codes: C22 G15 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (83)

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Working Paper: Geopolitical Risks and Stock Market Dynamics of the BRICS (2016)
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DOI: 10.1016/j.ecosys.2017.05.008

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