Measuring the Impact of Geopolitical Risk on Capital Market in Selected Developed Countries

Abstract

Shocks that cause uncertainty also inevitably have an impact on financial markets, in addition to the typical range of economic and financial considerations. Previous research shows that recent events like the COVID-19 pandemic, changes in oil prices, and the Russian-Ukrainian conflict have had an impact on the world financial market. The aim of the paper is to examine the impact of geopolitical risk on the capital markets of developed countries in the region of Asia and Oceania. The main research variables in the capital market are share trading and market capitalization. To measure the impact of geopolitical risk on capital market variables, in the period from 2005 to 2022, a panel regression analysis was applied. The observation period includes three major events that had a strong impact on the global capital markets, namely the global financial crisis, COVID-19, and the Russian-Ukrainian conflict. According to the findings, stock trading is negatively impacted, while market capitalization is positively impacted by geopolitical risk. Both influences are not significant. When making financial decisions, information about how the capital markets respond to geopolitical events can be helpful, especially for investors.