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

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

This paper analyses the effect of supply constraints on international stock market volatility, while also considering its effect on stock returns. Using a higher-order nonparametric causality-in-quantiles test 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 alternative measures are used, including monthly realized variance and different metrics of supply constraints. Our findings have significant implications for investors and policymakers.
Original languageEnglish
Article number112176
JournalEconomics Letters
Volume247
Number of pages11
ISSN0165-1765
DOIs
Publication statusPublished - Feb 2025

Keywords

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

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