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Purpose <p>The interconnectedness of the global financial system increases its vulnerability to crises driven by Geopolitical Risks (GPR) and Economic Policy Uncertainties (EPU). This study examines the spillover effects of GPR and EPU on the Financial Stress Indices (FSI) of China, Russia, and the USA, and uncovers the transmission mechanisms driving these effects, offering a detailed analysis from global/external, country-specific, and mutual (GDP-weighted average of all three countries) perspectives.</p> Methods <p>We employ Cross-Quantilogram (CQ) and Recursive-CQ (R-CQ) methods to analyse high-frequency monthly data from 2000 to 2023, identifying spillover patterns and providing a comparative overview.</p> Results <p>We find that GPR and EPU have significant short-term effects on the FSI of these superpowers, but that they exhibit long-term resilience. The USA exhibits the highest resilience, with country-specific EPU (EPU-USA) and mutual GPR (MGPR) exerting notable short-term influence, particularly during bullish markets. China’s financial stress level responds heterogeneously to global EPU (GEPU) and mutual EPU (MEPU), with country-specific indices (EPU-CHN and GPR-CHN) having the most pronounced short-term effects. Russia's financial stress shows heightened vulnerability to global indices compared to country-specific indices (GPR-RUS and EPU-RUS), with global GPR (GGPR) and MEPU emerging as dominant factors. Overall, the USA's financial market demonstrates the highest resilience, while Russia’s market remains extremely susceptible to risk spillovers.</p> Conclusion <p>Comparative studies on the dynamic spillover effects of global, mutual, and local GPR and EPU on superpowers’ financial stress are limited. This research fills that gap, with a particular focus on the Russia-Ukraine conflict and ongoing geopolitical tensions. These findings offer valuable insights for policymakers and investors, underscoring the need for targeted risk mitigation strategies amid persistent geopolitical challenges.</p>

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Spillover Effects of Global, Local, and Mutual Risks on Financial Stress: How Do Superpowers React?

  • 期刊论文

  • 发表日期：

    2025年3月16日

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  • Faroque Ahmed,
  • Kazi Sohag,
  • Oleg Mariev,
  • Rakibul Islam,
  • Md. Ariful Alam,
  • Mahfuzur Rahman Shuvo

摘要

Purpose

The interconnectedness of the global financial system increases its vulnerability to crises driven by Geopolitical Risks (GPR) and Economic Policy Uncertainties (EPU). This study examines the spillover effects of GPR and EPU on the Financial Stress Indices (FSI) of China, Russia, and the USA, and uncovers the transmission mechanisms driving these effects, offering a detailed analysis from global/external, country-specific, and mutual (GDP-weighted average of all three countries) perspectives.

Methods

We employ Cross-Quantilogram (CQ) and Recursive-CQ (R-CQ) methods to analyse high-frequency monthly data from 2000 to 2023, identifying spillover patterns and providing a comparative overview.

Results

We find that GPR and EPU have significant short-term effects on the FSI of these superpowers, but that they exhibit long-term resilience. The USA exhibits the highest resilience, with country-specific EPU (EPU-USA) and mutual GPR (MGPR) exerting notable short-term influence, particularly during bullish markets. China’s financial stress level responds heterogeneously to global EPU (GEPU) and mutual EPU (MEPU), with country-specific indices (EPU-CHN and GPR-CHN) having the most pronounced short-term effects. Russia's financial stress shows heightened vulnerability to global indices compared to country-specific indices (GPR-RUS and EPU-RUS), with global GPR (GGPR) and MEPU emerging as dominant factors. Overall, the USA's financial market demonstrates the highest resilience, while Russia’s market remains extremely susceptible to risk spillovers.

Conclusion

Comparative studies on the dynamic spillover effects of global, mutual, and local GPR and EPU on superpowers’ financial stress are limited. This research fills that gap, with a particular focus on the Russia-Ukraine conflict and ongoing geopolitical tensions. These findings offer valuable insights for policymakers and investors, underscoring the need for targeted risk mitigation strategies amid persistent geopolitical challenges.