Measuring spatial impacts and tracking cross-border risk

Using a dynamic spatial model, this paper studies the cross-countries risk contagion of stock markets during the pandemic outbreak and Ukraine-Russia conflict. We adopt five channels for modeling spatial interdependency between markets and measure short- and long-term impacts. The estimated results show that a change of COVID-19 or the conflict in one market has a negative impact on other markets. In addition, we construct a risk network based on these indirect effects, which visualizes risk transmissions between markets from five channels. We document that geographic proximity and diversification affect risk transmissions between markets via its impact on distinctive interdependencies. The pandemic and the conflict have serious repercussions for the stock markets located in the regions correlated more with the zones suffering from the two events, respectively. As a robust test, we explore heterogeneous effects in regions and periods. The impact of COVID-19 is negative in all regions, but the war is significant in the regions with Europe. The impact of COVID-19 on stock markets is significant during 2020–2021, and the impact of the conflict on stock markets is significant during 2022. Our study complements the risk contagion studies on cross-border stock markets from a spatiotemporal perspective and provides implications for policy-makers and investors.