Geopolitical risks and the oil-stock nexus over 1899–2016

Nikolaos Antonakakis, Rangan Gupta, Christos Kollias, Stephanos Papadamou

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    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 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). The results reveal that geopolitical risk triggers a negative effect, mainly on oil returns and volatility, and to a smaller degree on the covariance between the two markets.
    Original languageEnglish
    Pages (from-to)165-173
    Number of pages9
    JournalFinance Research Letters
    Volume23
    Early online date1 Aug 2017
    DOIs
    Publication statusPublished - 1 Nov 2017

    Keywords

    • geopolitical risk
    • stock and oil markets
    • BEKK-GARCH models

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