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Global geopolitical risk and financial stability: Evidence from China

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  • Zhu, Sha
  • Xia, Yuqin
  • Li, Qiuxuan
  • Chen, Yunjia

Abstract

This study provides evidence that global geopolitical risk (GPR) significantly impacts financial stability. By constructing five sub-market stress indices (banking, securities, foreign exchange, housing, and commodity), we assess sub-market stress spillovers and financial stress total connectedness for China using an improved Diebold and Yilmaz method. Furthermore, we innovatively investigate the relationship between GPR and financial stress total connectedness. The findings indicate that GPR positively affects financial stress total connectedness. More notably, GPR can predict financial stress total connectedness at least leading four months. The global geopolitical threats risk and unexpected geopolitical risk are positively related with financial stress total connectedness.

Suggested Citation

  • Zhu, Sha & Xia, Yuqin & Li, Qiuxuan & Chen, Yunjia, 2025. "Global geopolitical risk and financial stability: Evidence from China," Finance Research Letters, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:finlet:v:72:y:2025:i:c:s1544612324015307
    DOI: 10.1016/j.frl.2024.106501
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