Geopolitical risk (GPR) caused by geopolitical events constitute a key dimension of systematic risk and influence financial markets and can affect the movements of asset prices. By using the data from TSE index, we provide some evidence on whether and how the GPR factors can explain the volatility of stock returns in Iran. To estimate the relationships among variables, the GARCH-MIDAS model is employed and allowing mixed-frequency data to be integrated while jointly modeling the conditional mean and volatility of returns, using data from 2010 to 2024 and implementing the analysis in Eviews12 software. to investigate the mechanism of GPR’s impact on the Tehran stock Exchange, we considered the GPR index, geopolitical action index, geopolitical threat index, and different country specific GPR indices. The empirical results suggest the global and most of the regional GPR have a significant impact on Tehran stock market. This paper provides some evidence for the different effects of GPR from different countries on Tehran stock market volatility. Considering that GPR is usually unanticipated, these findings shed light on the role of the GPR factors in explaining and forecasting the volatility of Tehran market returns.
Bahrieh et al. (Fri,) studied this question.