The impact of the Russia-Ukraine conflict on the connectedness of financial markets

Abstract

We investigate the impact of geopolitical risks caused by the Russian-Ukrainian conflict on Russia, European financial markets, and the global commodity markets. We measure the dynamic connectedness among them using time- and frequency-based time-varying parameter vector autoregression (TVP-VAR) approaches. The empirical findings indicate that (i) their relationship has changed due to the conflict; (ii) European equities and Russian bonds are the net transmitters of shocks; and (iii) the conflict affects returns and volatility connectedness among them in terms of short-and long-term frequencies, respectively.