Geopolitical Risk and Stock Market Volatility in Emerging Economies: Evidence from GARCH-MIDAS Model
Previous studies have found that geopolitical risk (GPR) caused by geopolitical events such as terrorist attacks can affect the movements of asset prices. However, the studies on whether and how these influences can explain and predict the volatility of stock returns in emerging markets are scant an...
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| Format: | Article |
| Language: | English |
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Wiley
2021-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2021/1159358 |
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| author | Menglong Yang Qiang Zhang Adan Yi Peng Peng |
| author_facet | Menglong Yang Qiang Zhang Adan Yi Peng Peng |
| author_sort | Menglong Yang |
| collection | DOAJ |
| description | Previous studies have found that geopolitical risk (GPR) caused by geopolitical events such as terrorist attacks can affect the movements of asset prices. However, the studies on whether and how these influences can explain and predict the volatility of stock returns in emerging markets are scant and emerging. By using the data from China’s CSI 300 index, we provide some evidence on whether and how the GPR factors can explain and forecast the volatility of stock returns in emerging economies. We employed the GARCH-MIDAS model and the model confidence set (MCS) to investigate the mechanism of GPR’s impact on the China stock market, and we considered the GPR index, geopolitical action index, geopolitical threat index, and different country-specific GPR indices. The empirical results suggest that except for a few emerging economies such as Mexico, Argentina, Russia, India, South Africa, Thailand, Israel, and Ukraine, the global and most of the regional GPR have a significant impact on China’s stock market. This paper provides some evidence for the different effects of GPR from different countries on China’s stock market volatility. As for predictive potential, GPRAct (geopolitical action index) has the best predictive power among all six types of GPR indices. Considering that GPR is usually unanticipated, these findings shed light on the role of the GPR factors in explaining and forecasting the volatility of China’s market returns. |
| format | Article |
| id | doaj-art-c00b8b0c39b24266951ea2a175d5c7b4 |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2021-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-c00b8b0c39b24266951ea2a175d5c7b42025-02-03T01:25:09ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2021-01-01202110.1155/2021/11593581159358Geopolitical Risk and Stock Market Volatility in Emerging Economies: Evidence from GARCH-MIDAS ModelMenglong Yang0Qiang Zhang1Adan Yi2Peng Peng3Center for Economics Finance and Management Studies, Hunan University, Changsha, ChinaCollege of Finance and Statistics, Hunan University, Changsha, ChinaForeign Language Department, Hunan University of Finance and Economics, Changsha, ChinaCollege of Computer Science and Electronic Engineering, Hunan University, Changsha, ChinaPrevious studies have found that geopolitical risk (GPR) caused by geopolitical events such as terrorist attacks can affect the movements of asset prices. However, the studies on whether and how these influences can explain and predict the volatility of stock returns in emerging markets are scant and emerging. By using the data from China’s CSI 300 index, we provide some evidence on whether and how the GPR factors can explain and forecast the volatility of stock returns in emerging economies. We employed the GARCH-MIDAS model and the model confidence set (MCS) to investigate the mechanism of GPR’s impact on the China stock market, and we considered the GPR index, geopolitical action index, geopolitical threat index, and different country-specific GPR indices. The empirical results suggest that except for a few emerging economies such as Mexico, Argentina, Russia, India, South Africa, Thailand, Israel, and Ukraine, the global and most of the regional GPR have a significant impact on China’s stock market. This paper provides some evidence for the different effects of GPR from different countries on China’s stock market volatility. As for predictive potential, GPRAct (geopolitical action index) has the best predictive power among all six types of GPR indices. Considering that GPR is usually unanticipated, these findings shed light on the role of the GPR factors in explaining and forecasting the volatility of China’s market returns.http://dx.doi.org/10.1155/2021/1159358 |
| spellingShingle | Menglong Yang Qiang Zhang Adan Yi Peng Peng Geopolitical Risk and Stock Market Volatility in Emerging Economies: Evidence from GARCH-MIDAS Model Discrete Dynamics in Nature and Society |
| title | Geopolitical Risk and Stock Market Volatility in Emerging Economies: Evidence from GARCH-MIDAS Model |
| title_full | Geopolitical Risk and Stock Market Volatility in Emerging Economies: Evidence from GARCH-MIDAS Model |
| title_fullStr | Geopolitical Risk and Stock Market Volatility in Emerging Economies: Evidence from GARCH-MIDAS Model |
| title_full_unstemmed | Geopolitical Risk and Stock Market Volatility in Emerging Economies: Evidence from GARCH-MIDAS Model |
| title_short | Geopolitical Risk and Stock Market Volatility in Emerging Economies: Evidence from GARCH-MIDAS Model |
| title_sort | geopolitical risk and stock market volatility in emerging economies evidence from garch midas model |
| url | http://dx.doi.org/10.1155/2021/1159358 |
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