Cyber risk, geopolitical uncertainty, and time-varying financial connectedness in Asia-Pacific markets

Abstract

This study examines how cyber risk and geopolitical uncertainty shape financial linkages across major Asia-Pacific markets over the period 2015–2025. Using a vector autoregressive framework with time-varying parameters, the analysis traces how shocks from global cyber incidents, captured by a newly developed Cyber Attack Intensity Index, and global financial uncertainty proxied by the VIX propagate across Asia-Pacific equity markets. The analysis identifies three distinct connectedness regimes corresponding to the pre-pandemic period, the COVID-19 crisis, and the post-pandemic phase. Global volatility emerges as the dominant source of spillovers, particularly during episodes of severe market stress. Cyber risk generates economically meaningful spillovers whose importance increases after 2022, contributing to regional financial connectedness alongside traditional sources of uncertainty. Geopolitical uncertainty exerts stronger effects during periods of heightened geopolitical tension but does not represent a persistent source of spillovers. The transmission of cyber shocks is uneven across markets, with financially open and technologically advanced economies displaying greater sensitivity to cyber disturbances. By embedding a multidimensional measure of cyber risk into a systemic spillover framework, the study provides new insights into how emerging digital risks reshape financial connectedness in the Asia-Pacific region and highlights the increasing vulnerability of regional markets to contagion originating from cyber incidents in an uncertain global environment.