Impact of geo-political risk on stocks, oil, and gold returns during GFC, COVID-19, and Russian – Ukraine War

Abstract

The study uses wavelet power spectrum and wavelet coherence transformation methodologies to examine how geopolitical risk affected the returns on stocks, oil, and gold during the GFC, COVID-19, and Russia-Ukraine war-three disruptive events that affected the world’s financial markets. For better diversification benefits during the turbulent times, we further investigate the degree of co-movement in frequency and time domains. We observe that GPR has high variations during Russia-Ukraine war period compared to COVID-19 period and is shown to have least variation during the GFC period. WTI crude oil and DJGI indexes are observed to have high variations during GFC, and COVID-19 periods followed by Russia-Ukraine war. We further observe that GOLD offers better diversification opportunity as well as leading movement against WTI and DJGI during disruptive events in financial markets. The results provide new understanding of how geopolitical risk affects financial assets for international investors, fund managers, and regulators, which would further aid to find risky and safer haven possibilities during the turmoil periods.

Keywords:

• geopolitical risk
• WTI
• gold
• stock return
• GFC
• COVID-19 and Russia-Ukraine war

JEL Classifications:

• G10
• G01
• I15

PUBLIC INTEREST STATEMENT

The recent crises such as the COVID-19 pandemic, oil price fluctuations and Russia invasion of Ukraine have affected the financial market globally. The study makes an honest attempt to investigate the impact of geopolitical risk (GPR) on crude oil, gold and stock returns and compare the effect during the period of three major disruptive events namely – Global financial crisis (GFC), COVID-19 and Russia-Ukraine war. We observe that GPR has high variations during Russia-Ukraine war period compared to COVID-19 period and is shown to have least variation during the GFC period. WTI crude oil, and DJGI indexes are observed to have high variations during GFC, and COVID-19 periods followed by Russia-Ukraine war. This study is important for policy makers, portfolio managers, and investors in identifying better diversification opportunities and devise strategies to minimize the risk of the portfolio during the turmoil periods in global perspectives.

Disclosure statement

We don’t have any conflict of interest to declare.

Notes

1. The list of newspapers include: The Boston Globe, Chicago Tribune, The Daily Telegraph, Financial Times, The Globe and Mail, The Guardian, Los Angeles Times, The New York Times, The Times, The Wall Street Journal, and the Washington Post.

2. The index includes 8125 number of constituent stocks. The top 10 constituent stocks by index weight are Apple Inc, Microsoft Corp, Amazon.com Inc, Alphabet Inc A, Tesla Inc, Alphabet Inc C, Berkshire Hathaway B, Johnson & Johnson, Unitedhealth Group Inc, and Nvidia Corp.

3. Data downloaded from https://www.matteoiacoviello.com/gpr.htm on April 29, 2022.

Additional information

Funding

The authors received no direct funding from any source for this research.

Notes on contributors

Mustafa Raza Rabbani

Mustafa Raza Rabbani holds a Ph.D. in Banking and Financial Services from the prestigious Jamia Millia Islamia University, New Delhi, India. Dr. Rabbani is a passionate researcher and in the last 2 years he has published more than 30 peer-reviewed research papers in the international journal of repute published by Emerald, Elsevier, Springer, Indesrscience, and indexed in Scopus, Web of Science (WoS) and ABDC listed, etc. He is serving as an Associate Professor of Accounting and Finance at the British University of Bahrain. His work has been published in a variety of international journals including Energy Economics, Annals of Operations Research, Research in International Business and Finance (RIBAF), Cogent Economics and Finance, Journal of Islamic and Middle eastern Finance and Management, Journal of Islamic Accounting and Business Research, Heliyon Business and Economics, Environmental Science and Pollution Research, Economic Research.