Equity market connectedness across regimes of geopolitical risks: Historical evidence and theory
使用阈值VAR模型研究G7国家股票收益在地缘政治风险高低状态下的关联性，发现高风险状态下关联性更强，且这种关联主要源于地缘政治威胁而非实际事件，并通过引入股息不确定性和模糊厌恶的理论模型解释这一现象。
We use a threshold VAR model to capture the connectedness of the equity returns of the G7 in a regime-contingent manner as defined by low- and high-geopolitical risks (GPR). We find that connectedness is statistically stronger when GPR is at its higher rather than lower regime, but more importantly, this observation can be associated with threats of adverse geopolitical events, rather than with their actual realization. To explain our empirical observations we employ a model of international trade in assets and international relative asset prices. We introduce uncertainty in the future dividend payments combined with ambiguity aversion of agents to changes in the expected dividends. This allows us to model a geopolitical threat as a shock that affects the level of ambiguity about future dividends. At the same time, a geopolitical act is defined as a shock to the current period endowment of a given country, with limited effects on asset prices and returns. Our obtained results have important portfolio allocation implications for investors.