Geopolitical Risk and Stock Market Reaction: An Event Study from Uzbekistan

Abstract

This study examines the reaction of the Uzbek stock market to geopolitical escalation involving Iran, the United States, and Israel, using an event-study approach. Existing studies on geopolitical risk predominantly focus on developed and emerging markets, while evidence from frontier markets remains relatively limited. This study addresses this gap by analyzing whether geopolitical shocks generate abnormal returns in a relatively segmented frontier market with limited global financial integration. The study employs daily stock price data from 90 firms listed on the Tashkent Stock Exchange. Using an estimation window of [-120, -11] and an event window of [-10, +10], abnormal returns are estimated using the market-adjusted model and further evaluated through robustness analyses, including alternative event windows and non-parametric statistical tests. The findings indicate that both average and cumulative abnormal returns remain statistically insignificant throughout the event window. These results suggest that the Uzbek stock market is relatively insensitive to external geopolitical shocks. From a theoretical perspective, the findings support the argument of market segmentation theory, which suggests that lower financial integration, limited foreign investor participation, and weaker information transmission may reduce the spillover effects of global geopolitical risk in frontier markets. The study contributes to the literature by extending research on geopolitical risk to Central Asian frontier markets and by providing empirical evidence of the heterogeneous transmission of geopolitical shocks across financial systems.