European Sovereign Bond and Stock Market Granger Causality Dynamics 

With: Pedro Gomes and Zeynep Ozde Kurter

Abstract: We investigate the lead-lag relationship using weekly sovereign (government) bond yield changes and stock returns for seven European countries and how it changed during the period 2008-2018. Such lead-lag analysis are evaluated through vector autoregressions (VARs) on weekly data and with a method, based on Markov-switching Granger causality, that determines the direction of the Granger causality endogenously. We find that there are significant changes in the direction of the Granger causality between stock returns and changes in sovereign bond yields that vary across the countries. Additionally, global and specific economic events are linked to changes in Granger causality. Our results indicate that stock returns take a leading role in changes of sovereign bond yields in Germany, France, Spain, Italy and the United Kingdom, while changes of sovereign bond yields significantly lead stock returns in Portugal and Greece, where these countries faced very high instability during the European sovereign debt crisis period. No significant lead-lag relationship is found between stock and sovereign bond markets in some sub-periods for all countries.

Fracking the Union? Oil Shocks and the Rise of U.S. Political Polarization - Submitted

With: Charisios Grivas

Abstract: This paper examines the evolution of the relationship between crude oil price movements and U.S. political polarisation over time. Using monthly data from 1981 to 2025, we study the dynamic interaction between oil price returns and the Partisan Conflict Index (PCI), a measure of political disagreement among federal lawmakers. We employ a Markov-Switching Granger causality approach to identify regime-dependent causal patterns that reflect major shifts in U.S. energy policy, production structure, and political climate. Our results reveal three distinct regimes. In the early 1980s, oil price shocks were a primary source of political conflict. From the mid-1980s through the 2000s, when the U.S. became highly dependent on crude oil imports, we find a bidirectional relationship, with oil prices and political polarisation mutually reinforcing. Since the onset of the shale boom and the rise of climate policy debates after 2010, causality has reversed: partisan conflict has increasingly driven oil market expectations, particularly through regulatory uncertainty surrounding environmental policy and domestic energy production. These findings highlight the growing importance of political institutions and partisan polarisation as drivers of economic outcomes in energy markets. They also underscore the potential risks to energy investment and price stability from unresolved political conflict.