Abstract Geopolitical uncertainty has become an increasingly important driver of financial market dynamics. This study examines the relationship between the Geopolitical Risk Index (GPR) and sectoral stock market volatility in Italy over the period 2008–2024 using a two-stage empirical approach. Wavelet coherence analysis is employed to investigate time- and frequency-varying co-movements between geopolitical risk and sectoral volatility,while aTime-Varying ParameterVector Autoregression (TVP-VAR) model is used to assess dynamic spillover effects between the GPR and major Italian stock market sectors. The results show substantial heterogeneity across sectors and periods. Overall, the evidence suggests that geopolitical uncertainty is associated with changes in sectoral interconnectedness and volatility transmission, with the industrial and financial sectors emerging as net transmitters and the energy and automotive sectors as net receivers of spillovers. These findings provide useful insights for risk management, portfolio allocation, and investment decision-making under conditions of geopolitical instability.
The Geopolitical Risk Index and the Italian Stock Market: A Spillover Analysis
Vincenzo Pacelli
;Dayana Mariano;Maria Melania Povia
2026-01-01
Abstract
Abstract Geopolitical uncertainty has become an increasingly important driver of financial market dynamics. This study examines the relationship between the Geopolitical Risk Index (GPR) and sectoral stock market volatility in Italy over the period 2008–2024 using a two-stage empirical approach. Wavelet coherence analysis is employed to investigate time- and frequency-varying co-movements between geopolitical risk and sectoral volatility,while aTime-Varying ParameterVector Autoregression (TVP-VAR) model is used to assess dynamic spillover effects between the GPR and major Italian stock market sectors. The results show substantial heterogeneity across sectors and periods. Overall, the evidence suggests that geopolitical uncertainty is associated with changes in sectoral interconnectedness and volatility transmission, with the industrial and financial sectors emerging as net transmitters and the energy and automotive sectors as net receivers of spillovers. These findings provide useful insights for risk management, portfolio allocation, and investment decision-making under conditions of geopolitical instability.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
