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Geopolitical risk and the predictability of spillovers between exchange, commodity and stock markets

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  • Hao, Xinlei
  • Ma, Yong
  • Pan, Dongtao

Abstract

We utilize the cross-quantilogram method to assess the predictive capacity of geopolitical risk (GPR) on volatility spillovers calculated by the time-varying parameter vector autoregressive model, across international commodity, exchange, and U.S. and Chinese stock markets. The findings yield three notable observations: First, we establish the directional predictive influence of GPR on net and net pairwise volatility spillovers, indicating discernible shifts in the risk roles of specific markets and transmission pathways. Second, these shifts, anticipated by GPR, manifest swiftly within a single day and subside within a quarter, albeit with varying durations contingent on market categories and transmission pathways. Third, disparities are evident in the predictive effectiveness of geopolitical acts and geopolitical threats. These findings remain robust even when considering factors such as economic policy uncertainty, alternative proxies, and other spillover models.

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  • Hao, Xinlei & Ma, Yong & Pan, Dongtao, 2024. "Geopolitical risk and the predictability of spillovers between exchange, commodity and stock markets," Journal of Multinational Financial Management, Elsevier, vol. 73(C).
  • Handle: RePEc:eee:mulfin:v:73:y:2024:i:c:s1042444x24000082
    DOI: 10.1016/j.mulfin.2024.100843
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    Keywords

    Geopolitical risk; Volatility spillover; Cross-quantilogram; Commodity market; Foreign exchange market; Stock market;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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