Examining the Effects of Global and Indian Geo-Political Risk Indices and Indian News-Based Policy Uncertainty Index on Stock Indices of India using ARDL Model

The study aims to analyze the effects of geopolitical risk on the return of growth/Major Indian stocks during expansionary and recessionary periods across a conditional distribution. We selected a sample covering the period between 01/2003– 09/2023. ARDL Model were applied to examine the existence of impact of geopolitical risk and Indian News-Based Policy Uncertainty Index on major Indian stock indices. The present study employed a range of econometric techniques, including the ARDL bound-testing methodology and Johansen co-integration process, to ascertain the existence of a long-term co-integrating relationship among the variables. The findings indicate that there exists a detrimental impact of geopolitical risk on equities, with the magnitude of this impact varying based on the specific characteristics of the stock. The adverse impact is mitigated by the economic cycle; however, it gradually diminishes towards the bottom end of the stock return distribution. The results of this study provide further insight into investing methods employed by growth/value investors who seek to capitalize on opportunities that emerge throughout shifts in the economic cycle. This study offers evidence regarding the ways in which the economic cycle affects the relationship between geopolitical risk and growth/value and small/large stocks.