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<p>This study explores the influence of geopolitical risk (GPR) on the interconnectedness of Emerging 7 (E7) stock markets (Brazil, China, India, Indonesia, Mexico, Russia, and Turkey) to uncover how GPR affects market dynamics over time and across various frequencies. Utilizing a combination of Time-Varying Parameter Vector Autoregressive (TVP-VAR) models and wavelet coherence analysis, this research examines GPR’s effect on both the Total Connectedness Index (TCI) and individual E7 markets from January 2005 to September 2024. The findings indicate that while Geopolitical Risk (GPR) does not fundamentally alter E7 market interconnectedness, it significantly amplifies short-term spillover effects during heightened tensions. Key transmitters like India and Brazil drive market dynamics, while Turkey acts as a net receiver. Wavelet coherence analysis reveals strong short-term coherence between GPR and E7 markets, especially for Russia, while longer frequencies show minimal impact, indicating resilience and potential for diversification in E7 markets. Practically, investors are encouraged to leverage the heightened interconnectedness during geopolitical events to capitalize on short-term market fluctuations while simultaneously building diversified, long-term investment portfolios in the E7 region. By strategically reallocating investments during periods of geopolitical risk, investors can optimize returns and mitigate risks, ensuring a balanced approach to both immediate opportunities and sustained growth. This research’s originality lies in its focus on the time-varying and frequency-specific impacts of geopolitical risk (GPR) on E7 market interconnectedness, an area limited in existing studies. Unlike prior research, which tends to emphasize immediate volatility or broad comparisons in developed markets, this study reveals how GPR influences E7 market dynamics over different time horizons.</p>

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Time-Varying and Frequency-Specific Connectedness in E7 Markets Under Geopolitical Risk

  • 期刊论文

  • 发表日期：

    2025年7月15日

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  • Ahmad Al Izham Izadin,
  • Ahmad Rizal Mazlan,
  • Abdul Rahim Ridzuan

摘要

This study explores the influence of geopolitical risk (GPR) on the interconnectedness of Emerging 7 (E7) stock markets (Brazil, China, India, Indonesia, Mexico, Russia, and Turkey) to uncover how GPR affects market dynamics over time and across various frequencies. Utilizing a combination of Time-Varying Parameter Vector Autoregressive (TVP-VAR) models and wavelet coherence analysis, this research examines GPR’s effect on both the Total Connectedness Index (TCI) and individual E7 markets from January 2005 to September 2024. The findings indicate that while Geopolitical Risk (GPR) does not fundamentally alter E7 market interconnectedness, it significantly amplifies short-term spillover effects during heightened tensions. Key transmitters like India and Brazil drive market dynamics, while Turkey acts as a net receiver. Wavelet coherence analysis reveals strong short-term coherence between GPR and E7 markets, especially for Russia, while longer frequencies show minimal impact, indicating resilience and potential for diversification in E7 markets. Practically, investors are encouraged to leverage the heightened interconnectedness during geopolitical events to capitalize on short-term market fluctuations while simultaneously building diversified, long-term investment portfolios in the E7 region. By strategically reallocating investments during periods of geopolitical risk, investors can optimize returns and mitigate risks, ensuring a balanced approach to both immediate opportunities and sustained growth. This research’s originality lies in its focus on the time-varying and frequency-specific impacts of geopolitical risk (GPR) on E7 market interconnectedness, an area limited in existing studies. Unlike prior research, which tends to emphasize immediate volatility or broad comparisons in developed markets, this study reveals how GPR influences E7 market dynamics over different time horizons.