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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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    Citations

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    Cited by:

    1. Theodoros Bratis & Georgios P. Kouretas & Nikiforos T. Laopodis & Prodromos Vlamis, 2024. "Sovereign credit and geopolitical risks during and after the EMU crisis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3692-3712, July.
    2. António Afonso & José Alves & Sofia Monteiro, 2024. "Echoes of Instability: How Geopolitical Risks Shape Government Debt Holdings," CESifo Working Paper Series 11235, CESifo.
    3. Afonso, António & Alves, José & Monteiro, Sofia, 2024. "Beyond borders: Assessing the influence of Geopolitical tensions on sovereign risk dynamics," European Journal of Political Economy, Elsevier, vol. 83(C).
    4. Zhang, Bin & Liu, Zuyao & Wang, Zhaohua & Zhang, Shuang, 2023. "The impact of geopolitical risk on energy security: Evidence from a GMM panel VAR approach," Resources Policy, Elsevier, vol. 86(PB).
    5. Yilmazkuday, Hakan, 2024. "Geopolitical risk and stock prices," European Journal of Political Economy, Elsevier, vol. 83(C).
    6. Fiorillo, Paolo & Meles, Antonio & Pellegrino, Luigi Raffaele & Verdoliva, Vincenzo, 2024. "Geopolitical risk and stock price crash risk: The mitigating role of ESG performance," International Review of Financial Analysis, Elsevier, vol. 91(C).
    7. Wen, Chufu & Zhu, Haoyang & Dai, Zhifeng, 2023. "Forecasting commodity prices returns: The role of partial least squares approach," Energy Economics, Elsevier, vol. 125(C).
    8. Li, Rong & Tang, Guangyuan & Hong, Chen & Li, Sufang & Li, Bingting & Xiang, Shujian, 2024. "A study on economic policy uncertainty, geopolitical risk and stock market spillovers in BRICS countries," The North American Journal of Economics and Finance, Elsevier, vol. 73(C).
    9. 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).
    10. 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).
    11. Li, Zerong & Xu, Liang & Humbatova, Sugra & Ibragimov, Ganijon, 2024. "Analyzing the dynamic interplay of natural resources, environmental factors, and green growth," Resources Policy, Elsevier, vol. 92(C).
    12. Hu, Yichuan & Xue, Chang & Zhou, Xiaoyu, 2023. "Risk without strike: Nuclear crisis and corporate investment," European Economic Review, Elsevier, vol. 159(C).
    13. 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).
    14. Salachas, Evangelos & Kouretas, Georgios P. & Laopodis, Nikiforos T. & Vlamis, Prodromos, 2024. "Stock market spillovers of global risks and hedging opportunities," European Journal of Political Economy, Elsevier, vol. 83(C).

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