Geopolitical Risk, Capital Flow Volatility, and Asset Market Spillovers

John Beirne and Nuobu Renzhi
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Nuobu Renzhi: Capital University of Economics and Business in Beijing

No 820, ADB Economics Working Paper Series from Asian Development Bank

Abstract: This paper examines the effects of country-specific geopolitical risk on capital flow volatility and asset markets across 29 emerging and advanced economies over the period 2000–2023. Using panel regressions and a panel structural vector autoregression framework, the results show that geopolitical risk raises bond yields and leads to exchange rate depreciation, with stronger and more persistent effects in emerging economies. Asset markets for advanced economies are affected mainly through lower equity prices. The impact on capital flow volatility is slightly higher on average for advanced economies but remains more persistent for emerging economies. Greater financial development, higher central bank independence, and lower public debt mitigate the adverse effects of geopolitical risk on both capital flows and asset markets. These findings highlight the importance of strong macroeconomic fundamentals and institutional frameworks in building resilience against geopolitical shocks.

Keywords: geopolitical risk; capital flow volatility; financial markets (search for similar items in EconPapers)
JEL-codes: G15 G41 (search for similar items in EconPapers)
Pages: 27
Date: 2025-11-21
New Economics Papers: this item is included in nep-fdg, nep-ifn and nep-mon
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Related works:
Journal Article: Geopolitical risk, capital flow volatility, and asset market spillovers (2026)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:adbewp:021786

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