Geopolitical Tensions and Financial Market Spillovers A Time-Varying Connectedness Analysis of Commodity and Equity Markets
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Abstract
This study investigates the spillover effects of geopolitical tensions on commodity and stock markets, focusing on their influence on risk transmission and market stability. By applying a TVP-VAR connectedness framework, it quantifies dynamic interdependencies and higher-order moment risks across financial markets. The research identifies key shock transmitters and receivers, offering insights into crisis-period market behavior. Using daily data from January 2, 2017, to December 21, 2023, the analysis captures time-varying linkages and risk transmissions across commodity and stock markets. The methodology allows for identifying key transmitters and receivers of market shocks during heightened geopolitical tensions. The findings reveal that the Israel-Palestine conflict significantly increases overall spillovers and volatility within financial markets. The TA Allshare index emerges as a primary source of market shocks, reflecting its central role in regional risk transmission. In contrast, the Al-Quds Palestinian index is identified as the most prominent net receiver. These results have important implications for both policymakers and market participants, emphasizing the need to understand and manage geopolitical risk in financial systems.
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