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Global, local, or glocal? Unravelling the interplay of geopolitical risks and financial stress

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  • Ahmed, Faroque
  • Gurdgiev, Constantin
  • Sohag, Kazi
  • Islam, Md. Monirul
  • Zeqiraj, Veton

Abstract

Since the start of the previous decade, regionalization of trade and investment flows has led to complex coupling in local (country-level) and global risks. To-date, little is known about how global uncertainty interacts with local uncertainty across the financial systems. Our study investigates the nexus between global and country-specific Geopolitical Risks (GPRs) and financial stress index (FSI) in five highly-open, large developed economies. We employ the cross-quantilogram and cross-spectral quantile coherency approaches on weekly data over 2000–2022 to show heterogeneous dependency of local and global geopolitical uncertainty on the financial stress conditions. Specifically, our results show that in the U.S. and the UK dependency of local and global geopolitical uncertainty on the financial stress conditions is influenced by the varying market conditions. In contrast, Canadian FSI is intensified by both global and country-level geopolitical risks, whereas German and French financial systems exhibit significant resilience to the global and local geopolitical shocks. Hence, the latter markets show hedging properties vis-a-vis global geopolitical risks.

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  • Ahmed, Faroque & Gurdgiev, Constantin & Sohag, Kazi & Islam, Md. Monirul & Zeqiraj, Veton, 2024. "Global, local, or glocal? Unravelling the interplay of geopolitical risks and financial stress," Journal of Multinational Financial Management, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:mulfin:v:75:y:2024:i:c:s1042444x24000367
    DOI: 10.1016/j.mulfin.2024.100871
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    More about this item

    Keywords

    Quantile Dependence; Financial Stress Index; Global GPR; Country Level GPR; Open Economy; Cross-Quantilogram; Cross-Spectral Quantile Coherency;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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