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Stock market spillovers of global risks and hedging opportunities

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  • Salachas, Evangelos
  • Kouretas, Georgios P.
  • Laopodis, Nikiforos T.
  • Vlamis, Prodromos

Abstract

In this paper, we shed light on the linkage between several global risks and stock market returns. We use a dataset including G7, BRICS, MENA, and SAHEL group countries for a period of more than 30 years. We explore the spillover effects on global stock markets fueled by geopolitical, climatic, and global health risks. We provide evidence of a significant negative impact of geopolitical shocks on stock markets across countries. Further, we document that geopolitical shocks contribute to the spillover transmission of stock market volatility We also document that climate change and the global health crisis constitute risks that should be considered as a factor that heightens geopolitical risk. Finally, we identify possible strategies to hedge against geopolitical risk using a specific set of financial assets such as artwork.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:poleco:v:83:y:2024:i:c:s0176268024000351
    DOI: 10.1016/j.ejpoleco.2024.102533
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    More about this item

    Keywords

    Geopolitical risk index; Stock returns; Climate risk; Panel VAR; GARCH models; Stock market hedging;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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