Risk, Frictions, and Liquidity: An Integrated Literature Survey on Geopolitical and Climate Risk and Market Design

Geoff Edwards

MPRA Paper from University Library of Munich, Germany

Abstract: This article surveys research on how geopolitical/ political and climate risks affect corporate behavior and market outcomes through financial constraints, information frictions, and market design. It integrates recent evidence on geopolitical risk and corporate tax avoidance under constraints; climate risk and asymmetric tail spillovers in international energy markets; transparency/anonymity reforms, broker identity disclosure, latency reduction, and venue switching as determinants of market quality; corporate events (M&A, bank lending, bankruptcies) as information shocks influencing liquidity and informed trading; and systemic risk/ratings mechanisms, including connectedness, CoVaR, capital shortfall, SRISK, and sovereign rating ceiling effects. The survey highlights common empirical architectures: text- based risk indices, event studies, high-frequency microstructure metrics (spreads, price impact, Kyle’s lambda), and time-frequency connectedness methods. A unifying “risk–friction– liquidity” framework is proposed with testable implications and a research agenda focused on identification, robustness, and cross-asset tail dynamics.

Keywords: Geopolitical; risk; Policical; risk; Corporate; behaviour; Market; design (search for similar items in EconPapers)
JEL-codes: G1 G10 G19 G28 (search for similar items in EconPapers)
Date: 2026-02-14
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:128690

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