Stock market spillovers of global risks and hedging opportunities

Abstract

In this paper, we shed light on the linkage between several global risks and stock market returns. We use a dataset including G7, BRICS, MENA, and SAHEL group countries for a period of more than 30 years. We explore the spillover effects on global stock markets fueled by geopolitical, climatic, and global health risks. We provide evidence of a significant negative impact of geopolitical shocks on stock markets across countries. Further, we document that geopolitical shocks contribute to the spillover transmission of stock market volatility We also document that climate change and the global health crisis constitute risks that should be considered as a factor that heightens geopolitical risk. Finally, we identify possible strategies to hedge against geopolitical risk using a specific set of financial assets such as artwork.