Supply Chain Constraints and the Predictability of the Conditional Distribution of International Stock Market Returns and Volatility

Elie Bouria, Oguzhan Cepni, Rangan Gupta, Ruipeng Liu

Research output: Working paperResearch

Abstract

This paper analyses the effect of supply constraints on international stock market volatility and while also considering their effect on stock returns. Using higher-order nonparametric causality-in-quantiles tests and daily data for China, France, Germany, Italy, Spain, the United Kingdom, the United States, and overall Europe, we find strong evidence of Granger causality flowing from supply constraints to the entire conditional distribution of stock returns and volatility. Notably, supply constraints positively predict stock volatility. This positive predictability remains robust when using alternative measures, including monthly realized variance and different metrics of supply constraints. Our findings have implications for investors and policymakers.
Original languageEnglish
Place of PublicationPretoria
PublisherUniversity of Pretoria
Number of pages15
Publication statusPublished - Sept 2024
SeriesWorking Paper Series / Department of Economics. University of Pretoria
Number2024-40

Keywords

  • Supply constraints
  • Stock markets volatility
  • Higher-order nonparametric
  • Causality-in-quantiles test

Cite this