Geopolitical Risks, Returns, and Volatility in Emerging Stock Markets: Evidence from a Panel GARCH Model. Issue 8 (21st June 2019)

• Record Type: Journal Article
• Authors: Bouras, Christos; Christou, Christina; Gupta, Rangan; Suleman, Tahir
• Is Part Of: Emerging markets finance & trade. Volume 55:Issue 8(2019)
• Page Start: 1841
• Page End: 1856
• Publication Date: 2019-06-21
• Subjects: emerging economies -- geopolitical risks -- panel GARCH -- returns and volatility -- stock markets; C33 -- G15; Balkan Peninsula -- Commerce -- Periodicals; Balkan Peninsula -- Foreign economic relations -- Periodicals; Europe, Central -- Commerce -- Periodicals; Europe, Central -- Foreign economic relations -- Periodicals; Europe, Eastern -- Commerce -- Periodicals; Europe, Eastern -- Foreign economic relations -- Periodicals; Turkey -- Commerce -- Periodicals; Turkey -- Foreign economic relations -- Periodicals; Asia -- Commerce -- Periodicals; Asia -- Foreign economic relations -- Periodicals; Eurasia -- Commerce -- Periodicals; Eurasia -- Foreign economic relations -- Periodicals; 382.05
• DOI: 10.1080/1540496X.2018.1507906
• Languages: English
• ISSNs: 1540-496X

Abstract

ABSTRACT: In this article, we analyze the role of country-specific and global geopolitical risks (GPRs) on the returns and volatility of 18 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, unlikein 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.