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Geopolitical Risks and Stock Market Volatility in the G7 Countries: A Century of Evidence from a Time-Varying Nonparametric Panel Data Model

Author

Listed:
  • Elie Bouri

    (USEK Business School, Holy Spirit University of Kaslik, Jounieh, Lebanon)

  • Oguzhan Cepni

    (Central Bank of the Republic of Turkey, Haci Bayram Mah. Istiklal Cad. No: 10 06050, Ankara, Turkey)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)

  • Naji Jalkh

    (Faculty of Business and Management, University Saint Joseph, Beirut, Lebanon)

Abstract

In this paper, we analyze the role of global geopolitical risks (GPRs) on the realized volatility of Canada, France, Germany, Italy, Japan, the United Kingdom (UK), and the United States (US), i.e., the G7 countries, over the period 1917 to 2016. For our purpose, we use a time-varying nonparametric panel data model approach, which offers substantial efficiency gains in estimating the relationship in a time-varying manner, while controlling for nonlinearity and cross-sectional interdependencies across economies, unlike a time series-based model. We find that, GPRs can decrease or increase volatility contingent on the state of the two variables of concern, with attacks having a stronger impact on volatility than threats. Our results have important implications for investors and policymakers.

Suggested Citation

  • Elie Bouri & Oguzhan Cepni & Rangan Gupta & Naji Jalkh, 2020. "Geopolitical Risks and Stock Market Volatility in the G7 Countries: A Century of Evidence from a Time-Varying Nonparametric Panel Data Model," Working Papers 202029, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202029
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    Cited by:

    1. Rangan Gupta & Sayar Karmakar & Christian Pierdzioch, 2022. "Safe Havens, Machine Learning, and the Sources of Geopolitical Risk: A Forecasting Analysis Using Over a Century of Data," Working Papers 202201, University of Pretoria, Department of Economics.

    More about this item

    Keywords

    Geopolitical Risks; Stock Markets; Realized Volatility; G7; Time-Varying Nonparametric Panel Data Model;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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