Global geopolitical risk and financial stability: Evidence from China

Sha Zhu, Yuqin Xia, Qiuxuan Li and Yunjia Chen

Finance Research Letters, 2025, vol. 72, issue C

Abstract: This study provides evidence that global geopolitical risk (GPR) significantly impacts financial stability. By constructing five sub-market stress indices (banking, securities, foreign exchange, housing, and commodity), we assess sub-market stress spillovers and financial stress total connectedness for China using an improved Diebold and Yilmaz method. Furthermore, we innovatively investigate the relationship between GPR and financial stress total connectedness. The findings indicate that GPR positively affects financial stress total connectedness. More notably, GPR can predict financial stress total connectedness at least leading four months. The global geopolitical threats risk and unexpected geopolitical risk are positively related with financial stress total connectedness.

Keywords: Global geopolitical risk; Chinese financial stress index; Financial stress connectedness; TVP-VAR-SV model; Geopolitical threats risk; Geopolitical acts risk (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:72:y:2025:i:c:s1544612324015307

DOI: 10.1016/j.frl.2024.106501

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