The impact of geopolitical risk on the capital market: Evidence from the Panel-ARDL model in selected countries

Document Type : Original Article

Authors
fariba kalhor 1
hossein abbasinejad 2
1 PhD student in Economics, University of Tehran, Tehran, Iran.
2 Professor, Department of Economics, University of Tehran, Tehran, Iran.
10.22034/jik.2025.78319.4697
Abstract
This study analyzes the impact of geopolitical risk on the capital market using the Panel ARDL model in selected countries. Specifically, the short-term and long-term effects of independent variables, including interest rates, GDP growth, inflation, and geopolitical risk (GPR), on capital market indices were examined. The results from the ARDL model indicate that in the short term, interest rates do not have a significant effect on the capital market. However, in the long term, an increase in interest rates significantly reduces asset values and decreases demand for the stock market. On the other hand, GDP growth positively affects the capital market in both the short and long term, with higher economic growth enhancing stock values and increasing investor confidence. Inflation has a positive and significant effect on the capital market in the short term, and its long-term impact is even stronger, significantly influencing financial indices. Regarding geopolitical risk, the findings reveal that this factor negatively and significantly impacts the capital market in the short term, especially during periods of political and economic tensions. In the long term, geopolitical changes reduce investor confidence and increase market volatility. This study is particularly valuable for policymakers and investors seeking to assess the combined effects of geopolitical risk and inflation on financial markets.
Keywords
Geopolitical Risk
Capital Market
Panel ARDL Model
Interest Rates
GDP Growth
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