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The interplay among corporate bonds, geopolitical risks, equity market, and economic uncertainties

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  • Alshammari, Saad
  • Andriosopoulos, Kostas
  • Kaabia, Olfa
  • Mohamed, Kamel Si
  • Urom, Christian

Abstract

This study examines the dynamic interconnectedness and dependence between the USA’s corporate bond market (CMD) and economic and equity market uncertainties, as well as geopolitical risk. Using quantile Vector Autoregressive (QVAR) and Wavelet Local Multiple Correlation (WLMC) techniques, we place particular emphasis on the periods corresponding to the Russian–Ukrainian war and the COVID-19 pandemic. We find significantly higher interconnectedness, particularly at the upper quantile and large scale, during these two events, lending support to the use of asymmetric models. Additionally, our findings reveal that the impact is more robust when uncertainty increases compared to periods of decreased uncertainty. These results carry vital implications for policymakers and macro-prudential authorities, emphasizing the necessity to consider a changing macroeconomic environment and to reduce dependence on Russian energy sources to navigate a complex and evolving financial landscape.

Suggested Citation

  • Alshammari, Saad & Andriosopoulos, Kostas & Kaabia, Olfa & Mohamed, Kamel Si & Urom, Christian, 2024. "The interplay among corporate bonds, geopolitical risks, equity market, and economic uncertainties," International Review of Financial Analysis, Elsevier, vol. 95(PA).
    • Handle: RePEc:eee:finana:v:95:y:2024:i:pa:s1057521924002825
    DOI: 10.1016/j.irfa.2024.103350
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    More about this item

    Keywords

    Corporate bonds; Geopolitical risks; Market uncertainties; Quantile VAR; WLMC;
    All these keywords.

    JEL classification:

    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • G1 - Financial Economics - - General Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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