Risk spillovers across geopolitical risk and global financial markets

Geopolitical risk (GPR) significantly impacts cross-market risk spillovers in global financial markets. However, the existing literature has relatively little empirical evidence on the risk spillover effects of GPR and multiple representative financial markets. Based on a time-varying frequency risk spillover network model, this paper examines the risk spillover effects across GPR and global stock markets, foreign exchange markets, bond markets, crude oil markets, and gold markets from both short-term and long-term perspectives. It found that (1) global foreign exchange and bond markets act as the center of global financial risk spillover networks, and GPR is more closely linked to crude oil markets; (2) the entire risk spillover network is mainly driven by short-term risk spillovers, but under the impact of the COVID-19 pandemic, the risk spillover network is dominated by long-term risk spillovers; (3) in the occurrence of geopolitical events, GPR could intensify cross-market risk spillovers in global financial markets, forming a risk spillover path with GPR as the risk transmitter and the gold market as the risk receiver. This study further analyzes risk spillover effects by considering risk asymmetry. The results show that risk spillovers from the GPR and global financial markets are significantly asymmetric and are dominated by risk spillovers that consider negative risk changes. These findings can help prevent cross-market risk spillovers among GPR and global financial markets and provide new ideas to counteract black swan events.