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Geopolitical Risks and the Oil-Stock Nexus Over 1899-2016

Author

Listed:
  • Nikolaos Antonakakis

    (Webster Vienna Private University and University of Portsmouth)

  • Rangan Gupta

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

  • Christos Kollias

    (University of Thessaly)

  • Stephanos Papadamou

    (University of Thessaly)

Abstract

Markets are invariably influenced and affected not only by the usual array of economic and financial factors but also by uncertainty inducing shocks. Using monthly stock and oil real returns data that spans over a century, this study takes a long historical perspective on whether the time-varying stock–oil covariance, their returns and their variances are affected by geopolitical risk as encapsulated and quantified by a recently developed index (Caldara and Iacoviello, 2016). To address the issue, a VAR(p)-BEKK-GARCH(1,1) model is used. The results reported herein indicate that the geopolitical risk index introduced in the estimations triggers a negative effect mainly in case of oil returns and volatility and to a smaller degree reduces the covariance between the two markets with a time lag.

Suggested Citation

  • Nikolaos Antonakakis & Rangan Gupta & Christos Kollias & Stephanos Papadamou, 2017. "Geopolitical Risks and the Oil-Stock Nexus Over 1899-2016," Working Papers 201702, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201702
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    JEL classification:

    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • G1 - Financial Economics - - General Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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