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Geopolitical risks and stock market dynamics of the BRICS

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  • Balcilar, Mehmet
  • Bonato, Matteo
  • Demirer, Riza
  • Gupta, Rangan

Abstract

This paper examines the effect of geopolitical uncertainty on return and volatility dynamics in the BRICS stock markets via nonparametric causality-in-quantiles tests. The effect of geopolitical risks (GPRs) is found to be heterogeneous across the BRICS stock markets, suggesting that news regarding geopolitical tensions do not affect return dynamics in these markets in a uniform way. GPRs are generally found to impact stock market volatility measures rather than returns, and often at return quantiles below the median, indicating the role of GPRs as a driver of bad volatility in these markets. While Russia bears the greatest risk exposure to GPRs in terms of both return and volatility, India is found to be the most resilient BRICS nation in the group. Noting that geopolitical shocks and in particular terrorist incidents are largely unanticipated, our findings underscore the importance of a strong financial sector that can help return the market to stability and an open economy that allows local investors to diversify country-specific risks in their portfolios.

Suggested Citation

  • Balcilar, Mehmet & Bonato, Matteo & Demirer, Riza & Gupta, Rangan, 2018. "Geopolitical risks and stock market dynamics of the BRICS," Economic Systems, Elsevier, vol. 42(2), pages 295-306.
  • Handle: RePEc:eee:ecosys:v:42:y:2018:i:2:p:295-306
    DOI: 10.1016/j.ecosys.2017.05.008
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    Cited by:

    1. Nicholas Apergis & Matteo Bonato & Rangan Gupta & Clement Kyei, 2016. "Does Geopolitical Risks Predict Stock Returns and Volatility of Leading Defense Companies? Evidence from a Nonparametric Approach," Working Papers 201671, University of Pretoria, Department of Economics.
    2. repec:gam:jrisks:v:6:y:2018:i:3:p:94-:d:168940 is not listed on IDEAS
    3. repec:mes:emfitr:v:55:y:2019:i:8:p:1841-1856 is not listed on IDEAS
    4. repec:eee:riibaf:v:47:y:2019:i:c:p:511-518 is not listed on IDEAS
    5. Joao F. Caldeira & Rangan Gupta & Tahir Suleman & Hudson S. Torrent, 2019. "Forecasting the Term Structure of Interest Rates of the BRICS: Evidence from a Nonparametric Functional Data Analysis," Working Papers 201911, University of Pretoria, Department of Economics.
    6. Ender Demir & Giray Gozgor & Rangan Gupta & Huseyin Kaya, 2018. "Effects of Geopolitical Risks on Trade Flows: Evidence from the Gravity Model," Working Papers 201835, University of Pretoria, Department of Economics.
    7. repec:gei:jnlfer:v:3:y:2018:i:2:p:24-36 is not listed on IDEAS
    8. Chuliá, Helena & Gupta, Rangan & Uribe, Jorge M. & Wohar, Mark E., 2017. "Impact of US uncertainties on emerging and mature markets: Evidence from a quantile-vector autoregressive approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 178-191.
    9. repec:eee:finana:v:59:y:2018:i:c:p:117-133 is not listed on IDEAS
    10. Godwin Olasehinde-Williams & Mehmet Balcilar, 2018. "The Long-run Effect of Geopolitical Risks on Insurance Premiums," Working Papers 15-44, Eastern Mediterranean University, Department of Economics.
    11. repec:eee:ecofin:v:48:y:2019:i:c:p:1-19 is not listed on IDEAS
    12. Christos Bouras & Christina Christou & Rangan Gupta & Tahir Suleman, 2019. "Geopolitical Risks, Returns, and Volatility in Emerging Stock Markets: Evidence from a Panel GARCH Model," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(8), pages 1841-1856, June.

    More about this item

    Keywords

    Geopolitical risks; Stock returns; Volatility; BRICS;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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