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Geopolitical Risks and Stock Market Dynamics of the BRICS

Author

Listed:
  • Mehmet Balcilar

    () (Department of Economics, Eastern Mediterranean University and Department of Economics, University of Pretoria)

  • Matteo Bonato

    () (Department of Economics and Econometrics, University of Johannesburg)

  • Riza Demirer

    () (Department of Economics and Finance, Southern Illinois University Edwardsville, USA)

  • Rangan Gupta

    () (Department of Economics, University of Pretoria, Pretoria)

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 mean, indicating the role of GPRs as 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 BRIC nation with no significant causality effects observed. We argue that a combination of factors including exposure to political and financial risks, the strength of domestic demand and exposure to the U.S dollar in foreign exchange reserves drive the heterogeneity in the reaction of these emerging stock markets to geopolitical risks.

Suggested Citation

  • Mehmet Balcilar & Matteo Bonato & Riza Demirer & Rangan Gupta, 2016. "Geopolitical Risks and Stock Market Dynamics of the BRICS," Working Papers 201648, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201648
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    2. repec:eee:riibaf:v:47:y:2019:i:c:p:511-518 is not listed on IDEAS
    3. 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.
    4. Elie Bouri & Riza Demirer & Rangan Gupta & Xiaojin Sun, 2019. "The Predictability of Stock Market Volatility in Emerging Economies: Relative Roles of Local, Regional and Global Business Cycles," Working Papers 201938, University of Pretoria, Department of Economics.
    5. 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.
    6. 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.
    7. repec:gei:jnlfer:v:3:y:2018:i:2:p:24-36 is not listed on IDEAS
    8. repec:eee:ecofin:v:48:y:2019:i:c:p:1-19 is not listed on IDEAS
    9. 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.
    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. 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.
    12. repec:eee:finana:v:59:y:2018:i:c:p:117-133 is not listed on IDEAS

    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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