The effects of geopolitical risks on the stock dynamics of China's rare metals: A TVP-VAR analysis

摘要

Adopting a time-varying parameter vector autoregression (TVP-VAR) model, we analyze the dynamic effects of geopolitical risks (GPRs) on the stock returns and volatility of China's rare metals at three time horizons and four time points. In addition, we consider the differences among five GPRs indexes and five rare metal stock markets. The results show that the impulse responses are time-varying and heterogeneous across rare metal stock markets and GPRs indexes. In general, in the short term, the effects of a benchmark GPRs index on the stock returns of China's aggregate rare metals (RM) are positive before 2012 and negative afterwards, while its influences on the stock volatility are negative in most cases. GPRs generated from the four events exert significant and different influences on both the stock returns and stock volatility of RM. Among the four indexes, act-based GPRs index affects the stock returns more negatively, while broad GPRs index has stronger positive effects on the stock volatility of RM. The research results indicate that dynamic and targeted risk-hedging measures should be taken for China's rare metal stock markets.