Geopolitical risk transmission dynamics to commodity, stock, and energy markets

Mohammad Ashraful Ferdous Chowdhury; M. Kabir Hassan; Mohammad Abdullah; Md Mofazzal Hossain; Mohammad Ashraful Ferdous Chowdhury; M. Kabir Hassan; Mohammad Abdullah; Md Mofazzal Hossain

doi:10.3934/QFE.2025003

Quantitative Finance and Economics

2025, Volume 9, Issue 1: 76-99. doi: 10.3934/QFE.2025003

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Research article

Geopolitical risk transmission dynamics to commodity, stock, and energy markets

1.
Department of Business Administration, Shahjalal University of Science & Technology, Sylhet, Bangladesh
2.
Department of Economics and Finance, College of Business Administration, University of New Orleans, New Orleans, USA
3.
Southampton Malaysia Business School, University of Southampton, Johor, Malaysia

Received: 15 November 2024 Revised: 31 December 2024 Accepted: 07 February 2025 Published: 18 February 2025
JEL Codes: F30, F50, G10, G14

In this study, we examined the transmission of geopolitical risk (GPR) to the stock, commodity, and energy markets. Using daily data from 1994 to 2022, we applied transfer entropy and time-frequency quantile vector autoregression-based connectedness approaches to examine the risk transmission mechanism. The results for the transfer entropy showed that wheat and corn returns are sensitive to GPR in the short term, while silver returns are highly reactive to GPR overall. The food commodity, energy, and stock market returns are significantly impacted by GPR during economic events. The static analysis of the connectedness approach showed that in the lower and mid-quantiles, stocks, energy commodities, and agricultural commodities transmit shocks toward GPR.
- geopolitical risk,
- stock market,
- commodity market,
- energy market,
- transfer entropy,
- spillover
Citation: Mohammad Ashraful Ferdous Chowdhury, M. Kabir Hassan, Mohammad Abdullah, Md Mofazzal Hossain. Geopolitical risk transmission dynamics to commodity, stock, and energy markets[J]. Quantitative Finance and Economics, 2025, 9(1): 76-99. doi: 10.3934/QFE.2025003

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Abstract

In this study, we examined the transmission of geopolitical risk (GPR) to the stock, commodity, and energy markets. Using daily data from 1994 to 2022, we applied transfer entropy and time-frequency quantile vector autoregression-based connectedness approaches to examine the risk transmission mechanism. The results for the transfer entropy showed that wheat and corn returns are sensitive to GPR in the short term, while silver returns are highly reactive to GPR overall. The food commodity, energy, and stock market returns are significantly impacted by GPR during economic events. The static analysis of the connectedness approach showed that in the lower and mid-quantiles, stocks, energy commodities, and agricultural commodities transmit shocks toward GPR.

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