Study by GIM, IIM Raipur and XLRI Finds Geopolitical Risks, Oil Price Shocks Drive Global Stock Market Volatility
Panaji, June 29 (TNT): A joint study by researchers from the Goa Institute of Management (GIM), Indian Institute of Management (IIM) Raipur and Xavier School of Management (XLRI), Jamshedpur, has found that geopolitical conflicts and fluctuations in crude oil prices have a significant impact on stock markets across advanced economies.
The study, published in the American Business Review, examined the interconnectedness between geopolitical risks, crude oil prices and stock market returns using daily data from 39 advanced economies covering the period from March 24, 2014, to December 15, 2023.
The research was conducted by Prof. Chinmaya Behera, Associate Professor at GIM, Prof. Pradiptarathi Panda, Assistant Professor at IIM Raipur, and Prof. Purna Chandra Padhan, Professor at XLRI Jamshedpur.
Using a model-free connectedness approach, the researchers found that nearly 72.9 per cent of global financial shocks arising from geopolitical conflicts and oil price fluctuations spill over into stock markets across advanced economies, highlighting the high degree of global financial interconnectedness.
Prof. Chinmaya Behera said the findings underscore the need for investors, policymakers and financial institutions to better understand interconnected global risks while developing resilient investment and policy frameworks.
The study identified Austria, Belgium, France, the Netherlands, Sweden, Switzerland and Taiwan as major transmitters of market disturbances, while Chile, Cyprus, Iceland, Latvia, Qatar and Slovenia were found to be among the most vulnerable recipients of such shocks.
The researchers also found that fluctuations in crude oil prices possess significant predictive power for stock market returns across most advanced economies. Geopolitical risk indicators were found to be particularly effective in forecasting stock market movements in countries including the Czech Republic, Greece, Iceland, the Netherlands, Qatar and Switzerland.
Prof. Pradiptarathi Panda said the study contributes to existing literature by combining volatility spillover analysis with predictive modelling, providing insights into both risk transmission and market forecasting across advanced economies.
Prof. Purna Chandra Padhan noted that geopolitical risks, crude oil prices and stock markets remained strongly interconnected even during periods of structural economic change and the COVID-19 pandemic.
According to the researchers, the findings could help investors strengthen portfolio diversification and risk management strategies, enable policymakers to improve monitoring of financial stability and systemic risks, and assist financial institutions in enhancing market volatility forecasting and investment decision-making during periods of global uncertainty.
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