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Geopolitical risks, uncertainty, and stock market performance

Author

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  • Maria-Eleni K. Agoraki
  • Georgios P. Kouretas
  • Nikiforos T. Laopodis

Abstract

This paper analyses the impact of geopolitical risks and economic policy uncertainty on stock returns. It uses an unbalanced panel dataset of monthly observations for 22 countries for the period 1985–2020. It controls for a set of macroeconomic and market structure variables while also taking into consideration the potential effects of the 2007–2009 financial crisis. This paper shows that the impact of geopolitical risks is negative and statistically significant. The economic interpretation of our main results is that a one-unit standard deviation increase in geopolitical risks decreases stock returns by 10.53–42.14% of its sample mean. For comparison, this paper uses alternatively the global economic policy uncertainty index and the economic policy uncertainty country index, and also finds a statistically significant negative relationship although it is weaker in the latter case.

Suggested Citation

  • Maria-Eleni K. Agoraki & Georgios P. Kouretas & Nikiforos T. Laopodis, 2022. "Geopolitical risks, uncertainty, and stock market performance," Economic and Political Studies, Taylor & Francis Journals, vol. 10(3), pages 253-265, July.
    • Handle: RePEc:taf:repsxx:v:10:y:2022:i:3:p:253-265
    DOI: 10.1080/20954816.2022.2095749
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    Cited by:

    1. Wen, Chufu & Zhu, Haoyang & Dai, Zhifeng, 2023. "Forecasting commodity prices returns: The role of partial least squares approach," Energy Economics, Elsevier, vol. 125(C).
    2. Khan, Nasir & Saleem, Asima & Ozkan, Oktay, 2023. "Do geopolitical oil price risk influence stock market returns and volatility of Pakistan: Evidence from novel non-parametric quantile causality approach," Resources Policy, Elsevier, vol. 81(C).
    3. Wen, Fenghua & Chen, Meng & Zhang, Yun & Miao, Xiao, 2023. "Oil price uncertainty and audit fees: Evidence from the energy industry," Energy Economics, Elsevier, vol. 125(C).
    4. Wen, Fenghua & Lin, Diyue & Hu, Lei & He, Shaoyi & Cao, Zhiling, 2023. "The spillover effect of corporate frauds and stock price crash risk," Finance Research Letters, Elsevier, vol. 57(C).

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