Vol. 14 No. 1 (2026): Business & Management Studies: An International Journal
Articles

The impact of geopolitical risks on stock markets

PDF
  • Ali Özer
Ali Özer
Assoc. Prof. Dr., Faculty of Business Administration, Düzce University, Düzce, Türkiye

Published 2026-03-25

Keywords

  • Geopolitical Risk, Stock Returns, VAR
  • Jeopolitik Risk; Hisse Senedi Getirileri, VAR

How to Cite

The impact of geopolitical risks on stock markets. (2026). Business & Management Studies: An International Journal, 14(1), 452-468. https://doi.org/10.15295/bmij.v14i1.2722

Copyright (c) 2026 Ali Özer

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

How to Cite

The impact of geopolitical risks on stock markets. (2026). Business & Management Studies: An International Journal, 14(1), 452-468. https://doi.org/10.15295/bmij.v14i1.2722

Abstract

This study investigates how geopolitical risk shocks affect the Turkish stock market using monthly data for 2010:01–2025:11. Geopolitical risk is proxied by the news-based Geopolitical Risk Index (GPR), and BIST-100 monthly returns measure market performance. For robustness, we estimate four alternative models with gradually expanded control sets capturing global risk appetite (VIX), exchange-rate shocks (USD/TRY), commodity shocks (Brent oil and gold), and inflation changes (CPI). The empirical strategy combines dynamic regressions with HAC/Newey–West inference, Jordà (2005) local projections to trace horizon-specific responses, and a VAR(p=1) framework as a consistency check. Dynamic regressions indicate that contemporaneous GPR changes are negative but statistically insignificant, whereas VIX shocks have a large, highly significant negative impact on returns. Local projections show that the adverse effect of geopolitical risk increases with horizon length and becomes significantly negative at longer horizons, especially at 12 months. VAR-based impulse responses are imprecise and sensitive to orthogonalisation and are treated as complementary evidence. Overall, geopolitical risk matters mainly over longer horizons, whereas global risk appetite dominates short-run return dynamics

PDF

References

  1. Apergis, N., & Fahmy, H. (2024). Geopolitical risk and energy price crash risk. Energy Economics, 140, 107975. https://doi.org/10.1016/j.eneco.2024.107975
  2. Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/qjw024
  3. Bekaert, G., & Harvey, C. R. (2000). Capital flows and the behavior of emerging market equity returns. In S. Edwards (Ed.), Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies (pp. 159–194). National Bureau of Economic Research
  4. Bekaert, G., Hoerova, M., & Duca, M. L. (2013). Risk, uncertainty and monetary policy. Journal of Monetary Economics, 60(7), 771-788. https://doi.org/10.1016/j.jmoneco.2013.06.003
  5. Bilson, C. M., Brailsford, T. J., & Hooper, V. C. (2002). The explanatory power of political risk in emerging markets. International Review of Financial Analysis, 11(1), 1–27. https://doi.org/10.1016/S1057-5219(01)00067-9
  6. Bloom, N. (2009). The impact of uncertainty shocks. Econometrica, 77(3), 623–685. https://doi.org/10.3982/ECTA6248
  7. Bouri, E., Cepni, O., Gupta, R., & Jalkh, N. (2020). Geopolitical risks and stock market volatility in the G7 countries: A century of evidence from a time-varying nonparametric panel data model. Working Paper No:202029, University of Pretoria, Department of Economics. https://EconPapers.repec.org/RePEc:pre:wpaper:202029
  8. Bulut, E., Yılmaz, E., Gerekan, B., & Marangoz, C. (2023). Impact of geopolitical risk and credit risk premium shocks on bist 100 and its top ten sectors: A quantile-on-quantile analysis, Available at SSRN 5111447. http://dx.doi.org/10.2139/ssrn.5111447
  9. Caldara, D., & Iacoviello, M. (2022). Measuring geopolitical risk. American Economic Review, 112(4), 1194–1225. https://doi.org/10.1257/aer.20191823
  10. Cboe Global Markets. (2022). Cboe Volatility Index (VIX) Methodology / Mathematics Methodology. 4-23. https://cdn.cboe.com/resources/indices/Volatility_Index_Methodology_Cboe_Volatility_Index.pdf
  11. Ceyhan, İ. F. (2025). Investigating the impact of global and Türkiye-specific geopolitical risks on BIST indices. Business & Management Studies: An International Journal, 13(3), 1376-1390. https://doi.org/10.15295/bmij.v13i3.2569
  12. Easley, D., & O'Hara, M. (2004). Information and the cost of capital. The Journal of Finance, 59(4), 1553–1583. https://doi.org/10.1111/j.1540-6261.2004.00672.x
  13. Erb, C. B., Harvey, C. R., & Viskanta, T. E. (1996). Political risk, economic risk, and financial risk. Financial Analysts Journal, 52(6), 29–46. https://doi.org/10.2469/faj.v52.n6.2038
  14. Erzurumlu, E. A., & Akçakanat, Ö. (2025). Jeopolitik risk endeksinin Türkiye’de BIST banka endeksi üzerine etkisi. Fiscaoeconomia, 9(4), 2155-2168. https://doi.org/10.25295/fsecon.1687064
  15. Gujarati, D. N., & Porter, D. C. (2009). Basic Econometrics (5th ed.). McGraw-Hill Irwin.
  16. Gürbüz, A. (2024). Heterojen belirsizlik endekslerinin BIST 100 endeksi üzerindeki etkisi: Bir ARDL sınır testi yaklaşımı. Finans Politik & Ekonomik Yorumlar, 61(670), 29-51.
  17. Irmak, F. (2025). Jeopolitik risk endeksi ile sektörel endeks getirileri arasindaki ilişki. Abant Sosyal Bilimler Dergisi, 25(2), 1005–1028. https://doi.org/10.11616/asbi.1658368
  18. İltas, Y. (2020). Farklı risk türleri ve borsa endeksi arasındaki ilişki: Türkiye için nedensellik testleri. Business and Economics Research Journal, 11(2), 371–384. https://doi.org/10.20409/berj.2020.255
  19. Jordà, Ò. (2005). Estimation and inference of impulse responses by local projections. American Economic Review, 95(1), 161–182. https://doi.org 10.1257/0002828053828518
  20. Kapopoulos, T. Sakkas, A., & Drakos, K. (2025). Geopolitical risk and foreign direct investment inflows. International Journal of Finance & Economics, 30(4), 4039–4062. https://doi.org/10.1002/ijfe.3106
  21. Ma, F., Lu, F., & Tao, Y. (2022). Geopolitical risk and excess stock returns predictability: New evidence from a century of data. Finance Research Letters, 50, 103211. https://doi.org/10.1016/j.frl.2022.103211
  22. Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77–91. https://doi.org/10.2307/2975974
  23. Merton, R. C. (1973). An intertemporal capital asset pricing model. Econometrica, 41(5), 867–887. https://doi.org/10.2307/1913811
  24. Mulabdic, A., & Yotov, Y. V. (2025). Geopolitical risks and trade. Policy Research Working Paper No. 11219. World Bank.
  25. Nazlıoğlu, E. H. (2025). Küresel belirsizlik ve risklerin Borsa İstanbul üzerindeki etkisi: BIST100 örneğinden kanıtlar. İstanbul Nişantaşı Üniversitesi Sosyal Bilimler Dergisi, 13(Özel Sayı), 1–13. https://doi.org/10.52122/nisantasisbd.1809527
  26. Newey, W. K., & West, K. D. (1987). A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica, 55(3), 703–708. https://doi.org/10.2307/1913610
  27. Papagianni, E., Evgenidis, A., Tsagkanos, A., & Megalooikonomou, V. (2024). Tourism demand in the face of geopolitical risk: Insights from a cross-country analysis. Journal of Travel Research, 63(8), 2094-2119. https://doi.org/10.1177/00472875231206539
  28. Pástor, Ľ., & Veronesi, P. (2010). Uncertainty about Government Policy and Stock Prices. NBER Working Paper No.16128. http://www.nber.org/papers/w16128
  29. Pástor, Ľ., & Veronesi, P. (2013). Political uncertainty and risk premia. Journal of Financial Economics. 110(3), 520-545. https://doi.org/10.1016/j.jfineco.2013.08.007
  30. Ross, S. A. (1976). The arbitrage theory of capital asset pricing. Journal of Economic Theory, 13(3), 341–360. https://doi.org/10.1016/0022-0531(76)90046-6
  31. Salisu, A. A., Ogbonna, A. E., Lasisi, L., & Olaniran, A. (2022). Geopolitical risk and stock market volatility in emerging markets: A GARCH–MIDAS approach. The North American Journal of Economics and Finance, 62, 101755. https://doi.org/10.1016/j.najef.2022.101755
  32. Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. The Journal of Finance, 19(3), 425–442. https://doi.org/10.2307/2977928
  33. Shiller, R. J. (2000). Irrational Exuberance. Princeton University Press.
  34. Sims, C. A. (1980). Macroeconomics and reality. Econometrica, 48(1), 1–48. https://doi.org/10.2307/1912017
  35. Üçler, G., & Özşahin, Ş. (2020). Jeopolitik risk ve borsa endeksinin nedensellik analizi: Gelişmekte olan ülkeler üzerine bootstrap panel nedensellik testi. Muhasebe ve Finansman Dergisi, (87), 167–180. https://doi.org/10.25095/mufad.756266
  36. Vurur, N. S., & Özdemir, L. (2023). Küresel ve Türkiye jeopolitik risklerin BIST turizm endeksine etkisinin karşılaştırılması. Uluslararası İktisadi ve İdari İncelemeler Dergisi (C-iasoS 2022 Özel Sayısı), 163–174. https://doi.org/10.18092/ulikidince.1224580
  37. Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data. MIT press.
  38. Zhang, Y., He, J., He, M., & Li, S. (2023). Geopolitical risk and stock market volatility: A global perspective. Finance Research Letters, 53, 103620. https://doi.org/10.1016/j.frl.2022.103620