Unravelling determinants and interconnectedness among global risks and financial stress in South and Southeast Asia

We investigate the interconnectedness among categorical global geopolitical risk, financial stress indices for advanced and emerging markets, global economic conditions, oil and gold market uncertainty, and financial stress in South and Southeast Asian economies and explore the impact of global factors on their connectedness, employing the time-frequency time-varying parameter vector autoregressive connectivity method and monthly data from January 2008 to June 2022. Our results reveal a large degree of interconnectedness and interdependence, where short-term connectedness dominates long-term connectedness. Furthermore, geopolitical risks, global economic conditions, and financial stress in South and Southeast Asian countries are net shock receivers, while financial stress indices for advanced and emerging markets, along with oil and gold market uncertainty, are net shock transmitters. A few factors exhibit risk transmission changes in both the short and long runs. Additionally, Asian economies’ financial stress is a net shock receiver of global uncertainty factors across spectral frequencies. In addition, economic policy uncertainty and Global FSI external influence spillover, whereas VIX and climate policy uncertainty have no impact on spillover. These empirical findings have implications for financial institutions and policymakers. • The connectedness between geopolitical risk (GPR), oil and gold market uncertainty, and financial stress was examined. • The data for South and Southeast Asian economies were employed. • Time- and frequency-domain evidence based on the TVP-VAR model was conducted. • A large degree of interconnectedness among GPR, oil and gold market uncertainty, and financial stress was determined. • Short-term connectedness dominates long-term connectedness.