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Volatility Jumps: The Role of Geopolitical Risks

Konstantinos Gkillas (Gillas) (), Rangan Gupta () and Mark Wohar ()

No 201805, Working Papers from University of Pretoria, Department of Economics

Abstract: In this paper we analyse the role of a news-based index of geopolitical risks (GPRs), in predicting volatility jumps in the Dow Jones Industrial Average (DJIA) over the monthly period of 1899:01 to 2017:12, with the jumps having been computed based on daily data over the same period. Standard linear Granger causality test fail to detect any evidence of GPRs causing volatility jumps. But given strong evidence of nonlinearity and structural breaks between jumps and GPRs, we next employ a nonparametric causality-in-quantiles test, because the linear model is misspecified. Using this data-driven robust approach we were able to detect overwhelming evidence of GPRs predicting volatility jumps in the DJIA over its entire conditional distribution.

Keywords: Stock Market Volatility Jumps; Geopolitical Risks (search for similar items in EconPapers)
JEL-codes: C22 G10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-his and nep-ore
Date: 2018-01
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