Dynamic Interactions of Geopolitical Risk, Economic Policy Uncertainty and Market Volatility with Stock and Commodity Markets: Evidence from India

This study examines the dynamic interactions of Geopolitical Risk (GPR), Economic Policy Uncertainty (EPU), and the Volatility Index (VIX), with financial and commodity markets in India by incorporating both global and India-specific GPR measures, alongside EPU-India and India-VIX indices. Using the wavelet coherence and DCC-GARCH (1,1) models on monthly data from January 2000 to December 2023, the study investigates co-movements and lead-lag relationships between uncertainty indicators and stock markets, precious metals, and crude oil. Findings reveal that the effects of uncertainty shocks on stock and commodity markets are time-varying and frequency dependent. Among the uncertainty measures, India-VIX and EPU-India exert strong, persistent negative effects on the BSE-500 over medium and long-term horizons. India-GPR exhibits mostly positive, short-lived co-movements with the BSE-500, while World-GPR linkages remain weak. Unlike silver, gold demonstrates robust hedging properties against India-VIX, while its co-movements with EPU-India and GPR are asymmetric and event-specific. Crude oil displays positive long-term co-movements with GPR and persistent negative patterns with EPU-India and India-VIX. Findings seem to be relevant to investors while designing portfolios and risk management strategies, and to the policy makers as well while framing appropriate policies in anticipating market reactions and forming market expectations, respectively.