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Supply Chain Constraints and the Predictability of the Conditional Distribution of International Stock Market Returns and Volatility

Author

Listed:
  • Elie Bouri

    (School of Business, Lebanese American University, Lebanon)

  • Oguzhan Cepni

    (Ostim Technical University, Ankara, Turkiye; University of Edinburgh Business School, Centre for Business, Climate Change, and Sustainability; Department of Economics, Copenhagen Business School, Denmark.)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Ruipeng Liu

    (Department of Finance, Deakin Business School, Deakin University, Melbourne, VIC 3125, Australia)

Abstract

This paper analyses the effect of supply constraints on international stock market volatility and while also considering their effect on stock returns. Using higher-order nonparametric causality-in-quantiles tests and daily data for China, France, Germany, Italy, Spain, the United Kingdom, the United States, and overall Europe, we find strong evidence of Granger causality flowing from supply constraints to the entire conditional distribution of stock returns and volatility. Notably, supply constraints positively predict stock volatility. This positive predictability remains robust when using alternative measures, including monthly realized variance and different metrics of supply constraints. Our findings have implications for investors and policymakers.

Suggested Citation

  • Elie Bouri & Oguzhan Cepni & Rangan Gupta & Ruipeng Liu, 2024. "Supply Chain Constraints and the Predictability of the Conditional Distribution of International Stock Market Returns and Volatility," Working Papers 202440, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202440
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    More about this item

    Keywords

    Supply Constraints; Stock Markets Volatility; Higher-Order Nonparametric Causality-in-Quantiles Test;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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