Geopolitical Risks, Returns, and Volatility in Emerging Stock Markets: Evidence from a Panel GARCH Model

Christos Bouras, Christina Christou, Rangan Gupta and Tahir Suleman

Emerging Markets Finance and Trade, 2020, vol. 55, issue 8, 1841-1856

Abstract: In this article, we analyze the role of country-specific and global geopolitical risks (GPRs) on the returns and volatility of 18 emerging market economies over the monthly period of 1998:11 to 2017:06. For our purpose, we use a panel Generalized Autoregressive Conditional Heteroskedasticity (GARCH) approach, which offers substantial efficiency gains in estimating the conditional variance and covariance processes by accounting for interdependencies and heterogeneity across economies, unlikein a time series-based GARCH model. We find that, while country-specific GPRs do not have an impact on stock returns, and the positive effect on equity market volatility is statistically weak. But when we consider a broad measure of global GPR, though there is still no significant effect on returns, the impact on volatility is both economically and statistically stronger than that obtained under the country-specific GPRs, thus highlighting the dominance of global rather than domestic shocks.

Date: 2020
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Journal Article: Geopolitical Risks, Returns, and Volatility in Emerging Stock Markets: Evidence from a Panel GARCH Model (2019)
Working Paper: Geopolitical Risks, Returns and Volatility in Emerging Stock Markets: Evidence from a Panel GARCH Model (2017)
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DOI: 10.1080/1540496X.2018.1507906

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