Risk without borders: a transfer entropy analysis of geopolitical spillovers in low- and lower-middle-income markets

How geopolitical risk affects stock markets in low and lower-middle-income countries remains an area often overlooked. This study analyzes daily data from 2014 to 2025 for 16 stock markets and two geopolitical risk subindices, acts and threats. The transfer entropy is applied in a dynamic framework to measure asymmetric and time-varying information flows. The findings reveal a heterogeneous influence of acts and threats, varying by country-income level, geographic region, and over time. Stock market sensitivity increased after 2020, particularly in response to acts rather than threats. This highlights distinct geopolitical risk transmission, requiring tailored investment strategies and policy responses.