The Impact of Geopolitical Risk Shocks and the Risk Spillover Effects on the Financial Market:An Analysis Based on the QVAR-DY Spillover Index
In recent years,the frequent occurrence of global geopolitical risks has posed a significant challenge to the stability of the global financial market.A thorough understanding of the impact of geopolitical risks on the financial market is crucial for formulating effective risk management strategies.This paper aims to explore the risk spillover effects of geopolitical risks on China's money market,stock market,foreign exchange market,and bond market,especially their performance under different market conditions.This paper selects the data from October 2007 to March 2023 and employs the QVAR-DY spillover index method.The static analysis results show that during market downturns,geopolitical risks have the greatest risk spillover effect on the stock market,while during market booms,the impact of geopolitical risks on the foreign exchange market is the greatest.The dynamic analysis results reveal that geopolitical shocks have the greatest impact on the stock market during market booms,and they have a greater influence on the money market during market downturns.Therefore,regulatory authorities should implement differentiated risk management strategies,focusing on stock market risks during periods of market exuberance,and on money and foreign exchange market risks during market downturns,prevent geopolitical risk shocks from having an excessive impact on the domestic financial system,thereby safeguard the bottom line of avoiding systemic financial risks.
geopolitical riskrisk spilloverfinancial marketQVAR-DY spillover index
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