The long-run effects of geopolitical risk on foreign exchange markets: evidence from some ASEAN countries

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9 Citations (Scopus)


The purpose of this paper is to analyse the long-run relationship between geopolitical risk and exchange rates in four ASEAN countries.

We augment theoretical nominal exchange rate models available in the literature with the geopolitical risk index developed by Caldara and Iacoviello (2019), and then estimate these models using the ARDL approach to Cointegration.

Our analysis uncovers evidence of Cointegration in the exchange rate models when the MYR-USD, IDR-USD, THB-USD and PHP-USD exchange rates are used as dependent variable. Next, geopolitical risk is a significant long-run driver for these exchange rates. Third, in all countries higher geopolitical risk leads to a depreciation of domestic currency.

Research limitations/implications
There are implications for entrepreneurs, central banks, portfolio managers and arbitrageurs who actively trade in financial markets. Financial market players can benefit from a better understanding of how geopolitical events affect the portfolio of financial assets across various countries, while entrepreneurs can work out hedging strategies.

This is a contribution to the study of interlinkages between political risk and foreign exchange markets. It is the first study to adopt the geopolitical risk index of Caldara and Iacoviello (2019) to the study the foreign exchange markets of ASEAN countries.
Original languageEnglish
Pages (from-to)1543-1564
Number of pages22
JournalInternational Journal of Emerging Markets
Issue number6
Early online date19 Jan 2021
Publication statusPublished - 14 Jun 2022


  • Cointegration
  • Exchange rate
  • Geopolitical risk

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)
  • Business and International Management


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