What question did this study set out to answer?

This research aims to investigate how geopolitical events affect financial markets worldwide, focusing on a specific military escalation.

July 1, 2026

Geopolitical Shocks and Financial Market Transmission: Evidence from Global Stock Markets

Key Points

This research aims to investigate how geopolitical events affect financial markets worldwide, focusing on a specific military escalation.
Analyzed 17 global equity markets using event study and panel regression techniques.
Employed Driscoll–Kraay standard errors and Fama–MacBeth estimation for robust analyses.
Applied GARCH modeling to assess volatility across markets.
Documented an average cumulative abnormal return decrease of approximately -2.5%.
Confirmed a negative war effect with β = -0.00356, p = .044 across various market frameworks.
Showed significant volatility increases in 14 out of 17 markets, indicating persistent shifts in market conditions.

Abstract

This study examines how the United States–Iran military escalation of February 28, 2026, was transmitted across 17 global equity markets. Using event study, panel regression with Driscoll–Kraay standard errors, Fama–MacBeth estimation, and generalized autoregressive conditional heteroskedasticity (GARCH) modeling, we document significant negative cumulative abnormal returns of approximately −2.5%. A negative war effect ( β = −0.00356, p = .044) is confirmed under panel and cross-market frameworks, transmitted primarily through global risk sentiment. Interaction analysis reveals an oil channel sign reversal during the crisis. Extended-sample GARCH shows significant volatility elevation in 14 of 17 markets, consistent with a persistent shift in volatility conditions. JEL Codes: G14, G15, F51, O16, C23

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