How Russian-Ukrainian geopolitical risks affect Chinese commodity and financial markets?

Abstract

In this paper, we explore whether and how the Russian-Ukrainian conflict impact Chinese commodity and financial markets. For this purpose, we use the connectedness method based on time-varying parameter vector autoregression (TVP-VAR) model to measure the time and frequency domains dynamic connectedness among ten commodity markets and five financial markets. The empirical findings include: (i) the total connectedness increased due to the conflict, but the impact of Russia-Ukrainian conflict is weaker than that brought about by COVID-19 epidemic; (ii) the Russia-Ukrainian conflict affects the stability of Chinese commodity and financial systems mainly by affecting Chinese commodity markets, especially by increasing risks in energy, chemical and grain markets; (iii) the conflict increased short-term connectedness more and has weaker impact on long-term connectedness, and the increase in short-term connectedness is mainly attributable to the increased risk of crude oil and chemical commodities, while the increase in long-term connectedness is not only attributable to the increased risk of crude oil and chemical commodities, but also related to the increased risk of grain commodities.