Stock Market Synchronization: The Role of Geopolitical Risk
Round 1
Reviewer 1 Report
In the paper, the authors deal with stock market synchronization.
The paper is well organized and contents of the paper are interesting.
Author Response
Thank you very much for reviewing our work and for your favorable comment.
Reviewer 2 Report
This paper has well written and organized. However, the author(s) must consider the following issues.
- (Introduction) The most weakness of this paper fails to address why readers should read your article. In particular, the theoretical contribution is very weak. All arguments of the author(s) must be made within theories or the extension of previous studies.
- (Background) Since there is no research hypothesis, reviews of previous studies and research questions must be presented.
- (Discussion) The findings do not provide useful guidelines for scholars/practitioners.
Author Response
Reviewer 2:
Comment 2.1: This paper has well written and organized. However, the author(s) must consider the following issues. (Introduction) The most weakness of this paper fails to address why readers should read your article. In particular, the theoretical contribution is very weak. All arguments of the author(s) must be made within theories or the extension of previous studies.
Response 2.1: We would like to thank the reviewer for acknowledging the quality and flow of our article. In the revised version, we maintain a flow of writing, making it more logically coherent in developing our story. We properly cited the previous studies.
Comment 2.2: (Background) Since there is no research hypothesis, reviews of previous studies and research questions must be presented.
Response 2.2: As per the comments, we re-designed our introduction section as follows. Brief background, research problem /question/objective, strands of motivations for formulating our research questions, and our contributions in terms of idea, method, findings, and policy implications.
Comment 2.3: (Discussion) The findings do not provide useful guidelines for scholars/practitioners.
Response 2.3: We have improved our conclusion section by providing practical implications for the investors and policy makers. "The findings of this study provide several policy implications for investor’ risk hedging and operations on equity markets in Russia, US and China. Strong interconnectedness among the three markets and its significant response to GPR can reduce the risk. The investors should account for the spillover effects received by the stock markets along with the predicted volatility induced by the geopolitical risk. Our findings supplement the investors’ knowledge which increases the effectiveness of hedging strategies along with portfolio diversification. Moreover, the results of the study can be helpful to the policy makers in US China and Russia in term of GPR induced equity market risk."
Reviewer 3 Report
JRFM: Stock Markets Synchronization: Role of Geopolitical Risk
The paper is interesting. However, I have some comments, as shown below:
1-In the first place, I would encourage the authors to extend the abstract more with the key results. As it is, the abstract is a little thin and does not quite convey the interesting results that follow in the main paper. The "Abstract" section can be made much more impressive by highlighting your contributions. The contribution of the study should be explained simply and clearly.
The introduction is comprehensive and useful to understand the background of the study.
2-It is not clear why the authors use weekly data and not daily ones.
3-Furthermore, justify the choice of the three stock market indices. Why not others?
4-The literature review section should be extended to provide at least discussion about the importance of other factors for the stock markets of the US, China, and Russia. It is important to associate global risk factors to stock connectedness, however, it exist other factors that should be mentioned in the paper. This can be done by considering the findings from other studies on the role of implied volatility (see, Does global fear predict fear in BRICS stock markets? Evidence from a Bayesian Graphical Structural VAR model. Emerging Markets Review, Vol. 34, pp. 124-142; “The Predictability of Stock Market Volatility in Emerging Economies: Relative Roles of Local, Regional and Global Business Cycles. Journal of Forecasting, Vol. 39 No. 6, pp. 957-965”; “ Predictability of GCC stock returns: the role of geopolitical risk and crude oil returns. Economic Analysis and Policy, Vol. 68, pp. 239-249”; and some studies on the use of extended DY spillover indices such as in “The realized volatility of commodity futures: Interconnectedness and determinants. International Review of Economics and Finance, Vol. 73, pp. 139-151.
5- The economic intuition of the results should be extended and the results must discussed in light of previous findings.
- Make tables and figures self-explanatory. Check to see whether working papers or forthcoming papers may have been published.
- Verify that all the cites have corresponding references. Delete references that are not cited in the text.
Author Response
Reviewer 3:
Comment 3.1: In the first place, I would encourage the authors to extend the abstract more with the key results. As it is, the abstract is a little thin and does not quite convey the interesting results that follow in the main paper. The "Abstract" section can be made much more impressive by highlighting your contributions. The contribution of the study should be explained simply and clearly. The introduction is comprehensive and useful to understand the background of the study.
Response 3.1: Thank you for acknowledging that our paper is well-written with motivation and contribution. We improved the Abstract and Introduction sections according to your suggestions, which has considerably helped to increase the comprehensiveness and quality of the sections.
Abstract … Since, stock market synchronisation is exposed to geopolitical risk, at the second stage, we apply the Quantile-on-Quantile framework to measure the response of total and bilateral connectedness indices to the geopolitical risk (GPR). The findings affirm our proposition that GPR impedes TCI at the bullish state of TCI and higher quantile of GPR
Introduction… Stock market synchronisation indicates considerable degrees of co-movements of different national stock markets, which is of mounting importance for international portfolio diversification (Wälti, 2011). Due to increasing trade and financial integration, liberalisation and overall globalisation significantly spur the magnitude of stock market synchronisation (Beine & Candelon, 2011). Nevertheless, the degree of co-movements is also anchored with different economic shocks and geopolitical turmoil. The relevance of geopolitical risk is more profound in the case of the US, Chinese and Russian stock markets, because of their economic and political dominance in the international market. Given this background, we are motivated to measure the response of the stock market synchronisation indices to the mounting geopolitical risks in the context of US, Chinese and Russian stock markets.
Comment 3.2: It is not clear why the authors use weekly data and not daily ones.
Response 3.2: As it is mentioned in the section 2, we use initial daily data on stock markets indices and monthly data of the geopolitical risk, which were converted from to daily data for the comprehensive analysis due to the lack of daily data on GPR during our research. However, based on your useful comment we improved the data description in the section 2 for better understanding for the reader.
Comment 3.3: Furthermore, justify the choice of the three stock market indices. Why not others?
Response 3.3: As per the comment, we extended the indices choice justification in the Data section.
Comment 3.4: The literature review section should be extended to provide at least discussion about the importance of other factors for the stock markets of the US, China, and Russia. It is important to associate global risk factors to stock connectedness, however, it exist other factors that should be mentioned in the paper. This can be done by considering the findings from other studies on the role of implied volatility (see, Does global fear predict fear in BRICS stock markets? Evidence from a Bayesian Graphical Structural VAR model. Emerging Markets Review, Vol. 34, pp. 124-142; “The Predictability of Stock Market Volatility in Emerging Economies: Relative Roles of Local, Regional and Global Business Cycles. Journal of Forecasting, Vol. 39 No. 6, pp. 957-965”; “Predictability of GCC stock returns: the role of geopolitical risk and crude oil returns. Economic Analysis and Policy, Vol. 68, pp. 239-249”; and some studies on the use of extended DY spillover indices such as in “The realized volatility of commodity futures: Interconnectedness and determinants. International Review of Economics and Finance, Vol. 73, pp. 139-151.
Response 3.4: Thank you for constructive comment. We have improved the introduction section maintaining a good flow and properly citing suggested articles.
Comment 3.5: The economic intuition of the results should be extended, and the results must discussed in light of previous findings.
Response 3.5: As per the comments, we have improved discussion with a great extent.
Comment 3.6: Make tables and figures self-explanatory. Check to see whether working papers or forthcoming papers may have been published. Verify that all the cites have corresponding references. Delete references that are not cited in the text.
Response 3.6: We have checked the list of the references and provided all the corrections according to the comment.
Round 2
Reviewer 2 Report
Well done. The revision is now acceptable.
Reviewer 3 Report
The authors have carefully addressed my comments and concerns.
