Geopolitical threats, equity returns, and optimal hedging
研究发现美国股市及信息技术、金融板块在地缘政治威胁高企时能获得显著正收益，而其他主要市场则不然；同时揭示了黄金作为对冲工具的价值。
In this paper, we demonstrate that the U.S. equity market and a few specific sectors produce significantly positive returns during high geopolitical threats, even with the presence of standard controls, whereas other major markets around the world fail to exhibit such results. We use the geopolitical threats (GPT) index of Caldara and Iacoviello (2022). We extend our study by examining the equity returns during extremely high geopolitical threats and find the results significantly positive for the U.S. equity market and two specific sectors- information technology and financials. The results of our investigation are likewise supported by the lead-lag regression and the Markov regime-switching model. Our results are robust in the presence of various alternative measures of market uncertainty indices, for instance, economic policy uncertainty, economic uncertainty, macroeconomic uncertainty etc., on a daily basis. However, the return on equity was not robust when conditional volatility and monthly frequency were considered. We also investigate and find the optimal hedging implications for investors during the presence of geopolitical threats. We find a considerable hedge alternative between the US market and gold and further explore how Geopolitical threats affect Gold and different US sectoral Exchange-traded funds (ETFs).