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Asymmetric effects of geopolitical risk on major currencies: Russia-Ukraine tensions

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  • Bossman, Ahmed
  • Gubareva, Mariya
  • Teplova, Tamara

Abstract

In a nonparametric quantile-on-quantile regression analysis, we study the asymmetric effects of the Russia-Ukraine geopolitical risk (GPR) on the seven major currencies in terms of the USD-denominated exchange rates. We find that GPR's impact on exchange rates is asymmetric, especially at low and high extremes, currency-specific, and depends on whether the country's legal system is predominantly based on common law or otherwise. Our findings signal the attractiveness of the Euro and the Swiss Franc currencies as a hedge for currency portfolios against GPR. The investment and policy implications of the findings are discussed.

Suggested Citation

  • Bossman, Ahmed & Gubareva, Mariya & Teplova, Tamara, 2023. "Asymmetric effects of geopolitical risk on major currencies: Russia-Ukraine tensions," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006171
    DOI: 10.1016/j.frl.2022.103440
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    More about this item

    Keywords

    Geopolitical risk; Foreign exchange rates; Quantile causality-in-means; Quantile regression model; Quantile-on-quantile regression; Russia; Ukraine;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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