Impact of Geopolitical Risk Events on Sectoral Stock Market Volatility: An Event Study Analysis

Abstract

Geopolitical risk events such as wars, political conflicts, and international tensions often create uncertainty in financial markets and influence investor behavior. This study examines the impact of geopolitical risk events on sectoral stock market performance and volatility in the Indian market using an event study methodology. Six major firms representing three sectors—steel, banking, and energy—were selected to analyze stock market reactions within an event window of ten trading days (t−5 to t+4) surrounding a geopolitical event. Abnormal returns were estimated using the market model, while cumulative average abnormal returns (CAAR) were used to evaluate overall market reactions. Statistical analysis including one-sample t-tests, sector-wise ANOVA, and volatility comparison was conducted to assess the significance of abnormal returns and sectoral differences. The empirical results indicate that although abnormal returns fluctuate around the event window, they are not statistically significant. Sectoral analysis also reveals no significant differences in abnormal returns across sectors. However, volatility analysis shows that the steel sector experienced relatively higher fluctuations compared to banking and energy sectors. Robustness tests using alternative event windows confirm the stability of these findings. Overall, the results suggest that financial markets respond quickly to geopolitical events, and the impact of such shocks is moderate and short-lived. The study contributes to the growing literature on geopolitical risk by providing sector-level evidence from an emerging market context.