IDEAS home Printed from https://ideas.repec.org/a/eee/ecofin/v73y2024ics1062940824001141.html
   My bibliography  Save this article

A study on economic policy uncertainty, geopolitical risk and stock market spillovers in BRICS countries

Author

Listed:
  • Li, Rong
  • Tang, Guangyuan
  • Hong, Chen
  • Li, Sufang
  • Li, Bingting
  • Xiang, Shujian

Abstract

The convergence of geopolitical tensions and economic disruptions may lead to significant fluctuations in the stock markets of BRICS countries. Against this background, in order to accurately meet new recovery opportunities of the stock market, the research on the spillover effect of the stock market is of great practical significance. This paper examines monthly stock market closing data from March 2001 to March 2023. It first uses the DY spillover index to analyze the spillover effects between economic policy uncertainty, geopolitical risks and the stock markets in BRICS countries. Then, based on the data obtained through the DY spillover index, this study draws a network chart using complex network and compares the difference of spillover effects before and after the pandemic. It finds that: The total spillover index is greater than 0, there is a bidirectional spillover effect between the variables, and there is an asymmetric feature. This feature is also confirmed by the fact that the overflow values between the indices on the network chart are inconsistent; the Russian stock index, the Brazilian stock index, the Indian stock index and the South African stock index are all risk bearers. But the Shanghai Composite Index, economic policy uncertainty and geopolitical risk are all risk recipients. To this end, the conclusions of this study can provide some theoretical basis for the policy makers of the BRICS countries to promote the smooth operation of their stock markets.

Suggested Citation

  • Li, Rong & Tang, Guangyuan & Hong, Chen & Li, Sufang & Li, Bingting & Xiang, Shujian, 2024. "A study on economic policy uncertainty, geopolitical risk and stock market spillovers in BRICS countries," The North American Journal of Economics and Finance, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:ecofin:v:73:y:2024:i:c:s1062940824001141
    DOI: 10.1016/j.najef.2024.102189
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062940824001141
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.najef.2024.102189?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Dario Caldara & Matteo Iacoviello, 2022. "Measuring Geopolitical Risk," American Economic Review, American Economic Association, vol. 112(4), pages 1194-1225, April.
    2. Antonakakis, Nikolaos & Cunado, Juncal & Filis, George & Gabauer, David & Perez de Gracia, Fernando, 2018. "Oil volatility, oil and gas firms and portfolio diversification," Energy Economics, Elsevier, vol. 70(C), pages 499-515.
    3. Zhang, Yaojie & He, Jiaxin & He, Mengxi & Li, Shaofang, 2023. "Geopolitical risk and stock market volatility: A global perspective," Finance Research Letters, Elsevier, vol. 53(C).
    4. Xiaoling Yu & Yirong Huang & Kaitian Xiao, 2021. "Global economic policy uncertainty and stock volatility: evidence from emerging economies," Journal of Applied Economics, Taylor & Francis Journals, vol. 24(1), pages 416-440, January.
    5. He, Zhifang, 2023. "Geopolitical risks and investor sentiment: Causality and TVP-VAR analysis," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).
    6. Lubos Pástor & Pietro Veronesi, 2012. "Uncertainty about Government Policy and Stock Prices," Journal of Finance, American Finance Association, vol. 67(4), pages 1219-1264, August.
    7. Afees A. Salisu & Philip C. Omoke & Abdulsalam Abidemi Sikiru, 2023. "Geopolitical risk and global financial cycle: Some forecasting experiments," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(1), pages 3-16, January.
    8. Al-Shboul, Mohammad & Assaf, Ata & Mokni, Khaled, 2023. "Does economic policy uncertainty drive the dynamic spillover among traditional currencies and cryptocurrencies? The role of the COVID-19 pandemic," Research in International Business and Finance, Elsevier, vol. 64(C).
    9. Kannadhasan, M. & Das, Debojyoti, 2020. "Do Asian emerging stock markets react to international economic policy uncertainty and geopolitical risk alike? A quantile regression approach," Finance Research Letters, Elsevier, vol. 34(C).
    10. Babita Panda & Ajaya Kumar Panda & Pradiptarathi Panda, 2023. "Macroeconomic Response to BRICS Countries Stock Markets Using Panel VAR," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(1), pages 259-272, March.
    11. Manel Youssef & Khaled Mokni & Ahdi Noomen Ajmi, 2021. "Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: does economic policy uncertainty matter?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-27, December.
    12. Narayan, Paresh Kumar & Narayan, Seema & Sharma, Susan Sunila, 2013. "An analysis of commodity markets: What gain for investors?," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3878-3889.
    13. Dai, Zhifeng & Peng, Yongxin, 2022. "Economic policy uncertainty and stock market sector time-varying spillover effect: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    14. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    15. Dongliang Cai & Tong Zhang & Kefei Han & Jingqi Liang & Wei Zhang, 2022. "Economic Policy Uncertainty Shocks and Chinese Stock Market Volatility: An Empirical Analysis with SVAR," Complexity, Hindawi, vol. 2022, pages 1-22, October.
    16. Maria-Eleni K. Agoraki & Georgios P. Kouretas & Nikiforos T. Laopodis, 2022. "Geopolitical risks, uncertainty, and stock market performance," Economic and Political Studies, Taylor & Francis Journals, vol. 10(3), pages 253-265, July.
    17. Paresh Kumar Narayan & Stephan Popp, 2010. "A new unit root test with two structural breaks in level and slope at unknown time," Journal of Applied Statistics, Taylor & Francis Journals, vol. 37(9), pages 1425-1438.
    18. Smales, L.A., 2021. "Geopolitical risk and volatility spillovers in oil and stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 358-366.
    19. Mohamed Arouri & Christophe Rault & Frédéric Teulon, 2014. "Economic policy uncertainty, oil price shocks and GCC stock markets," Economics Bulletin, AccessEcon, vol. 34(3), pages 1822-1834.
    20. Khalfaoui, Rabeh & Hammoudeh, Shawkat & Rehman, Mohd Ziaur, 2023. "Spillovers and connectedness among BRICS stock markets, cryptocurrencies, and uncertainty: Evidence from the quantile vector autoregression network," Emerging Markets Review, Elsevier, vol. 54(C).
    21. Rabeh Khalfaoui & Shawkat Hammoudeh & Mohd Ziaur Rehman, 2023. "Spillovers and connectedness among BRICS stock markets, cryptocurrencies, and uncertainty: Evidence from the quantile vector autoregression network," Post-Print hal-03998222, HAL.
    22. Maquieira, Carlos P. & Espinosa-Méndez, Christian & Gahona-Flores, Orlando, 2023. "How does economic policy uncertainty (EPU) impact copper-firms stock returns? International evidence," Resources Policy, Elsevier, vol. 81(C).
    23. Imen Dakhlaoui & Chaker Aloui, 2016. "The Interactive Relationship Between the US Economic Policy Uncertainty and BRIC Stock Markets," International Economics, CEPII research center, issue 146, pages 141-157.
    24. Huang, Yisu & Ma, Feng & Bouri, Elie & Huang, Dengshi, 2023. "A comprehensive investigation on the predictive power of economic policy uncertainty from non-U.S. countries for U.S. stock market returns," International Review of Financial Analysis, Elsevier, vol. 87(C).
    25. Zhang, Lixia & Bai, Jiancheng & Zhang, Yueyan & Cui, Can, 2023. "Global economic uncertainty and the Chinese stock market: Assessing the impacts of global indicators," Research in International Business and Finance, Elsevier, vol. 65(C).
    26. Li, Yanshuang & Shi, Yujie & Shi, Yongdong & Yi, Shangkun & Zhang, Weiping, 2023. "COVID-19 vaccinations and risk spillovers: Evidence from Asia-Pacific stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    27. Balcilar, Mehmet & Bonato, Matteo & Demirer, Riza & Gupta, Rangan, 2018. "Geopolitical risks and stock market dynamics of the BRICS," Economic Systems, Elsevier, vol. 42(2), pages 295-306.
    28. Kakran, Shubham & Kumari, Vineeta & Bajaj, Parminder Kaur & Sidhu, Arpit, 2024. "Exploring crisis-driven return spillovers in APEC stock markets: A frequency dynamics analysis," The Journal of Economic Asymmetries, Elsevier, vol. 29(C).
    29. Ngo Thai Hung, 2021. "Directional Spillover Effects Between BRICS Stock Markets and Economic Policy Uncertainty," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 28(3), pages 429-448, September.
    30. Barraza, Santiago & Civelli, Andrea, 2020. "Economic policy uncertainty and the supply of business loans," Journal of Banking & Finance, Elsevier, vol. 121(C).
    31. Yu, Xiaoling & Huang, Yirong, 2021. "The impact of economic policy uncertainty on stock volatility: Evidence from GARCH–MIDAS approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 570(C).
    32. Li, Wenqi, 2021. "COVID-19 and asymmetric volatility spillovers across global stock markets," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    33. Li, Rong & Li, Sufang & Yuan, Di & Chen, Hong & Xiang, Shilei, 2023. "Spillover effect of economic policy uncertainty on the stock market in the post-epidemic era," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    34. Wang, Ziwei & Li, Youwei & He, Feng, 2020. "Asymmetric volatility spillovers between economic policy uncertainty and stock markets: Evidence from China," Research in International Business and Finance, Elsevier, vol. 53(C).
    35. Mensi, Walid & Hammoudeh, Shawkat & Reboredo, Juan Carlos & Nguyen, Duc Khuong, 2014. "Do global factors impact BRICS stock markets? A quantile regression approach," Emerging Markets Review, Elsevier, vol. 19(C), pages 1-17.
    36. Demir, Ender & Danisman, Gamze Ozturk, 2021. "The impact of economic uncertainty and geopolitical risks on bank credit," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    37. Salisu, Afees A. & Ogbonna, Ahamuefula E. & Lasisi, Lukman & Olaniran, Abeeb, 2022. "Geopolitical risk and stock market volatility in emerging markets: A GARCH – MIDAS approach," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    38. Li, Dongxin & Zhang, Li & Li, Lihong, 2023. "Forecasting stock volatility with economic policy uncertainty: A smooth transition GARCH-MIDAS model," International Review of Financial Analysis, Elsevier, vol. 88(C).
    39. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
    40. Bouri, Elie & Gupta, Rangan & Hosseini, Seyedmehdi & Lau, Chi Keung Marco, 2018. "Does global fear predict fear in BRICS stock markets? Evidence from a Bayesian Graphical Structural VAR model," Emerging Markets Review, Elsevier, vol. 34(C), pages 124-142.
    41. Lu, Xinjie & Lang, Qiaoqi, 2023. "Categorial economic policy uncertainty indices or Twitter-based uncertainty indices? Evidence from Chinese stock market," Finance Research Letters, Elsevier, vol. 55(PB).
    42. repec:ipg:wpaper:2014-547 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Che, Ming & Zhu, Zixiang & Li, Yujia, 2023. "Geopolitical risk and economic policy uncertainty: Different roles in China's financial cycle," International Review of Financial Analysis, Elsevier, vol. 90(C).
    2. Zhang, Yulian & Hamori, Shigeyuki, 2022. "A connectedness analysis among BRICS’s geopolitical risks and the US macroeconomy," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 182-203.
    3. Almeida, José & Gaio, Cristina & Gonçalves, Tiago Cruz, 2024. "Crypto market relationships with bric countries' uncertainty – A wavelet-based approach," Technological Forecasting and Social Change, Elsevier, vol. 200(C).
    4. Salachas, Evangelos & Kouretas, Georgios P. & Laopodis, Nikiforos T. & Vlamis, Prodromos, 2024. "Stock market spillovers of global risks and hedging opportunities," European Journal of Political Economy, Elsevier, vol. 83(C).
    5. Babaei, Hamid & Hübner, Georges & Muller, Aline, 2023. "The effects of uncertainty on the dynamics of stock market interdependence: Evidence from the time-varying cointegration of the G7 stock markets," Journal of International Money and Finance, Elsevier, vol. 139(C).
    6. Yilmazkuday, Hakan, 2024. "Geopolitical risk and stock prices," European Journal of Political Economy, Elsevier, vol. 83(C).
    7. Das, Debojyoti & Kannadhasan, M. & Bhattacharyya, Malay, 2019. "Do the emerging stock markets react to international economic policy uncertainty, geopolitical risk and financial stress alike?," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 1-19.
    8. Su, Xianfang & Chen, Meixia, 2024. "Financial connectedness in BRICS: Quantile effects and BRICS SUMMIT impacts," The North American Journal of Economics and Finance, Elsevier, vol. 72(C).
    9. Nguyen, Dat Thanh & Phan, Dinh Hoang Bach & Anglingkusumo, Reza & Sasongko, Aryo, 2021. "US government shutdowns and Indonesian stock market," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    10. Hong, Yun & Zhang, Rushan & Zhang, Feipeng, 2024. "Time-varying causality impact of economic policy uncertainty on stock market returns: Global evidence from developed and emerging countries," International Review of Financial Analysis, Elsevier, vol. 91(C).
    11. Kamal, Javed Bin & Wohar, Mark & Kamal, Khaled Bin, 2022. "Do gold, oil, equities, and currencies hedge economic policy uncertainty and geopolitical risks during covid crisis?," Resources Policy, Elsevier, vol. 78(C).
    12. Simran, & Sharma, Anil Kumar, 2024. "Asymmetric nexus between economic policy uncertainty and the Indian stock market: Evidence using NARDL approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 91-101.
    13. Abdelaziz Eissa, Mohamed & Al Refai, Hisham, 2024. "Context-dependent responses to geopolitical risk in Middle Eastern and African stock markets: An asymmetric volatility spillover study," International Review of Economics & Finance, Elsevier, vol. 94(C).
    14. Xiao, Jihong & Jiang, Jiajie & Zhang, Yaojie, 2024. "Policy uncertainty, investor sentiment, and good and bad volatilities in the stock market: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 84(C).
    15. Zhao, Wandi & Gao, Yang, 2024. "Dynamic patterns and the latent community structure of sectoral volatility and jump risk contagion," Emerging Markets Review, Elsevier, vol. 59(C).
    16. Chen, Xiuwen & Yao, Yinhong & Wang, Lin & Huang, Shenwei, 2024. "How EPU, VIX, and GPR interact with the dynamic connectedness among commodity and financial markets: Evidence from wavelet analysis," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    17. Wang, Ningli & You, Wanhai, 2023. "New insights into the role of global factors in BRICS stock markets: A quantile cointegration approach," Economic Systems, Elsevier, vol. 47(2).
    18. Kai‐Hua Wang & Zu‐Shan Wang & Hong‐Wen Liu & Xin Li, 2023. "Economic policy uncertainty and geopolitical risk: evidence from China and Southeast Asia," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 37(2), pages 96-118, November.
    19. Khraiche, Maroula & Boudreau, James W. & Chowdhury, Md Shahedur R., 2023. "Geopolitical risk and stock market development," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    20. Wei Wang & Haibo Wang, 2024. "Interconnected Markets: Exploring the Dynamic Relationship Between BRICS Stock Markets and Cryptocurrency," Papers 2406.07641, arXiv.org.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecofin:v:73:y:2024:i:c:s1062940824001141. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620163 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.