Does Geopolitical Risks Predict Stock Returns and Volatility of Leading Defense Companies? Evidence from a Nonparametric Approach
By N. Apergis, Matteo Bonato, Rangan Gupta, Clement Kyei. 2017
145 citations recorded by the source corpus.
Abstract We use the k-th-order nonparametric causality test at monthly frequency over the period of 1985:1 to 2016:06 to analyze whether geopolitical risks can predict movements in stock returns and volatility of 24 global defense firms. The nonparametric approach controls for the existing misspecification of a linear framework of causality, and hence, the mild evidence of causality obtained under the standard Granger tests cannot be relied upon. When we apply the nonparametric test, we find that there is no evidence of predictability of stock returns of these defense companies emanating from the geopolitical risk measure. However, the geopolitical risk index does predict realized volatility in 50% of the companies. Our results indicate that while global geopolitical events over a period of time is less likely to predict returns, such global risks are more inclined in affecting future risk profile of defense firms.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/7db0007c2bc31223711a2abdf8ffdd86dd2da291
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Citations in the corpus
- Geopolitical Risks, Returns, and Volatility in Emerging Stock Markets: Evidence from a Panel GARCH Model (2018, methodology): “Note that global-level GPR indices have been used recently by Apergis et al. (2017), Caladara and Iacoviello (2017), Balcilar et al., (2018a), and Bouri et al.”
- Geopolitical Risks and Movements in Islamic Bond and Equity Markets: A Note (2019, background): “…volatility (and especially realized volatility – more robust measure of variance) more than returns7 (see for example, Balcilar et al. 2016, 2017; Apergis et al. (2017)).8 These findings suggest that the effect of GPRs on equity markets is largely transmitted via the volatility channel and…”