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Geopolitics in Motion: Sectoral Stock Market Responses to The Israel Iran Conflict
Subject area: Management and Commerce · Area of research: Stock Market
DOI: https://doi.org/10.64388/IREV9I9-1714773
Abstract
Escalating geopolitical tensions between Israel and Iran have generated significant volatility across global financial markets, with sectoral stock indices responding asymmetrically to conflict-related developments. This study investigates short-term and medium-term stock market reactions to major escalation events during January 2024 to February 2026. Using an event study methodology combined with volatility spillover and dynamic conditional correlation (DCC-GARCH) models, the research examines abnormal returns, systemic risk transmission, and cross-sector interdependence across energy, defense, banking, transportation, and technology sectors. The findings indicate statistically significant positive cumulative abnormal returns in energy and defense sectors, while banking and transportation sectors experience persistent negative reactions. Volatility spillovers intensify during escalation phases, with crude oil markets acting as dominant risk transmitters. Correlation convergence across sectors reduces diversification benefits during peak uncertainty periods. The results highlight how geopolitical shocks reshape capital allocation and amplify systemic vulnerability, offering implications for investors, policymakers, and risk managers operating in conflict-sensitive environments.
Keywords
Israel–Iran Conflict, Geopolitical Risk, Sectoral Stock Market Volatility, Event Study Analysis, Oil Price Shocks
How to cite this paper
@article{1714773,
author = {R. Pranchana},
title = {Geopolitics in Motion: Sectoral Stock Market Responses to The Israel Iran Conflict},
journal = {Iconic Research And Engineering Journals},
year = {2026},
volume = {9},
number = {9},
pages = {32-39},
issn = {2456-8880},
url = {https://www.irejournals.com/formatedpaper/1714773.pdf},
abstract = {Escalating geopolitical tensions between Israel and Iran have generated significant volatility across global financial markets, with sectoral stock indices responding asymmetrically to conflict-related developments. This study investigates short-term and medium-term stock market reactions to major escalation events during January 2024 to February 2026. Using an event study methodology combined with volatility spillover and dynamic conditional correlation (DCC-GARCH) models, the research examines abnormal returns, systemic risk transmission, and cross-sector interdependence across energy, defense, banking, transportation, and technology sectors. The findings indicate statistically significant positive cumulative abnormal returns in energy and defense sectors, while banking and transportation sectors experience persistent negative reactions. Volatility spillovers intensify during escalation phases, with crude oil markets acting as dominant risk transmitters. Correlation convergence across sectors reduces diversification benefits during peak uncertainty periods. The results highlight how geopolitical shocks reshape capital allocation and amplify systemic vulnerability, offering implications for investors, policymakers, and risk managers operating in conflict-sensitive environments.},
keywords = {Israel–Iran Conflict, Geopolitical Risk, Sectoral Stock Market Volatility, Event Study Analysis, Oil Price Shocks},
month = {March},
doi = {https://doi.org/10.64388/IREV9I9-1714773}
}