Purpose This study examines the efficiency of Lebanon's banking sector stock market by analyzing whether the stock prices of listed banks reflected macroeconomic conditions and geopolitical risks between 2011 and 2019. The research explores the disconnect between financial fundamentals and market behavior in a context marked by political instability and weak governance. Design/methodology/approach Using monthly data and a Panel Autoregressive Distributed Lag model, the study assesses both short- and long-run relationships between Lebanese bank stock prices and a set of macroeconomic and geopolitical variables, including inflation, interest rates, gold prices, public debt, economic activity, and a custom-constructed Geopolitical Risk Index. Findings The results confirm the existence of long-run cointegration among the variables; however, key macroeconomic and financial indicators do not significantly explain stock price fluctuations. This suggests informational inefficiency in the Lebanese banking stock market, likely due to political interference, systemic corruption, and investor reliance on sentiment rather than fundamentals. Research limitations/implications The analysis is limited to data from 2011 to 2019 and focuses solely on listed banks. Future research could extend the dataset beyond the 2019 crisis and incorporate firm-level or behavioral factors for deeper insights. Practical implications To improve market efficiency, reforms are needed to enhance regulatory oversight, improve disclosure standards, and strengthen governance mechanisms. Incorporating geopolitical risk assessments into financial modeling is also recommended for better investor guidance. Social implications The findings underline the need for stronger institutions, greater transparency, and reduced political influence to enhance investor confidence and restore proper market function in fragile economies. Originality/value This study provides a rare empirical investigation of the Lebanese stock market's efficiency using a comprehensive macro-financial and geopolitical framework. It highlights how structural governance failures and political shocks limit the ability of financial markets to reflect real economic dynamics.
Rizk et al. (Mon,) studied this question.