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Geopolitical Risks, Returns and Volatility in Emerging Stock Markets: Evidence from a Panel GARCH Model

Author

Listed:
  • Christos Bouras

    (Department of Banking and Financial Management, University of Piraeus, Piraeus, Greece.)

  • Christina Christou

    (School of Economics and Management, Open University of Cyprus, Latsia, Cyprus)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa and IPAG Business School, Paris, France.)

  • Tahir Suleman

    (School of Economics and Finance, Victoria University of Wellington, New Zealand and School of Business, Wellington Institute of Technology, New Zealand.)

Abstract

In this paper, we analyze the role of country-specific and global geopolitical risks (GPRs) on the returns and volatility of eighteen emerging market economies over the monthly period of 1998:11 to 2017:06. For our purpose, we use a panel Generalized Autoregressive Conditional Heteroskedasticity (GARCH) approach, which offers substantial efficiency gains in estimating the conditional variance and covariance processes by accounting for interdependencies and heterogeneity across economies, unlike in a time series-based GARCH model. We find that, while country-specific GPRs do not have an impact on stock returns, and the positive effect on equity market volatility is statistically weak. But when we consider a broad measure of global GPR, though there is still no significant effect on returns, the impact on volatility is both economically and statistically stronger than that obtained under the country-specific GPRs, thus highlighting the dominance of global rather than domestic shocks.

Suggested Citation

  • Christos Bouras & Christina Christou & Rangan Gupta & Tahir Suleman, 2017. "Geopolitical Risks, Returns and Volatility in Emerging Stock Markets: Evidence from a Panel GARCH Model," Working Papers 201777, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201777
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Geopolitical Risks; Stock Markets; Returns and Volatility; Emerging Economies; Panel GARCH;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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