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Volatility interconnectedness among financial and geopolitical markets: Evidence from COVID-19 and Ukraine-Russia crises

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  • Hoque, Mohammad Enamul
  • Sahabuddin, Mohammad
  • Bilgili, Faik

Abstract

This study investigates the interconnectedness of volatility and spillovers among various financial and geopolitical markets during the COVID-19 pandemic and the Ukraine-Russia crises. Utilizing a Time-Varying Parameter Frequency Vector Autoregression (TVP-VAR) approach, we analyze daily data spanning from January 2015 to June 2022. Our empirical findings reveal substantial interconnectedness and spillovers among geopolitical risk (GPR), oil & gas, gold, conventional stock, Islamic stocks, and sukuk markets, particularly heightened during the crises periods. Interestingly, we observe a lower level of risk spillover during the Ukraine-Russia conflict compared to the COVID-19 pandemic. Short-frequency risk spillovers dominate over long-frequency ones. Moreover, our results indicate that conventional equity, Islamic equity, oil, and gas sectors predominantly act as net-risk transmitters, while sukuk, gold, and GPR serve as net-risk receivers across both short- and long-term frequencies. Specifically, during the COVID-19 crisis, conventional equity, Islamic equity, oil, and gas sectors emerge as net-risk transmitters, while sukuk, gold, and GPR act as net informational receivers in total and long-term frequencies. Conversely, during the Ukraine-Russia conflict, the oil and gas sector, sukuk, gold, and GPR assume net-risk receiver roles, with conventional equity and Islamic equity acting as net transmitters in total and short-term spillovers. Notably, oil & gas, gold, conventional stocks, Islamic stocks, and sukuk markets exhibit lower sensitivity to geopolitical risk during both crises, suggesting their potential utility in hedging against such risk. These findings offer valuable insights for investment risk management strategies.

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  • Hoque, Mohammad Enamul & Sahabuddin, Mohammad & Bilgili, Faik, 2024. "Volatility interconnectedness among financial and geopolitical markets: Evidence from COVID-19 and Ukraine-Russia crises," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 303-320.
    • Handle: RePEc:eee:ecanpo:v:82:y:2024:i:c:p:303-320
    DOI: 10.1016/j.eap.2024.03.015
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