Geopolitical Escalation, Oil Price Moderation, and Asymmetric Market Responses: Evidence from The Saudi Financial ‎Market Using Event Study And GARCH Models

  • Authors

    • Dr. Fahad Sulaiman Mohammad Al Nafea Associate Professor, Department of Accounting, College of Business and Economics, Qassim University, P. O. Box: 6640, Buraidah, 51452, Saudi Arabia
    https://doi.org/10.14419/pdq7fj65

    Received date: February 22, 2026

    Accepted date: March 15, 2026

    Published date: March 20, 2026

  • Geopolitical Escalation; Market Responses; Oil Price Moderation; Event Study; GARCH Models

  • Abstract

    This study investigates the systemic interplay between geopolitical risk, oil‑price dynamics, and financial market behavior during the pro-‎jected 2024–2026 Middle Eastern conflict, employing a multi‑layered empirical architecture grounded in event‑study methodology and ‎GARCH‑family volatility models. Using monthly Caldara–Iacoviello GPR indices (2010–2026), daily TASI data, sectoral indices, and ‎oil‑price movements, the analysis quantifies abnormal returns, cumulative return trajectories, and asymmetric volatility responses across ‎major Saudi sectors. The findings reveal that geopolitical shocks impose pronounced valuation losses on TASI, Banks, Energy, and Trans-‎portation, while Gold ETFs consistently manifest safe‑haven properties and REITs/CEFs exhibit defensive insulation. CAR patterns con-‎firm persistent, non‑idiosyncratic market stress, and GARCH, EGARCH, and TGARCH estimations demonstrate high volatility persistence ‎with strong downside asymmetry. Oil prices function as dual moderator stabilizing energy‑linked sectors while intensifying pressures on ‎non‑energy sectors. The results underscore sector‑specific transmission channels and highlight the imperative for enhanced ‎risk‑management frameworks and policy stabilization mechanisms.

  • References

    1. Aboura, S., & Wagner, N. (2016). Extreme asymmetric volatility: Stress and aggregate asset prices. Journal of International Financial Markets, Insti-tutions and Money, 41, 47–59. https://doi.org/10.1016/j.intfin.2015.12.004.
    2. Aloui, R., Gupta, R., & Miller, S. M. (2016). Uncertainty and crude oil returns. Energy Economics, 55, 92–100. https://doi.org/10.1016/j.eneco.2016.01.012.
    3. Andrews, D. S., Puhr, H., & Knill, A. (2026). Transmission of geopolitical shocks to firm behavior: A synthesis and integrative model. Journal of International Business Policy. https://doi.org/10.1057/s42214-025-00232-8.
    4. Antonakakis, N., Chatziantoniou, I., & Filis, G. (2017). Oil shocks and stock markets: New evidence. Energy Economics, 66, 547–553. https://doi.org/10.1016/j.eneco.2017.06.005.
    5. Arin, K. P., Kaplan, S., Polyzos, E., & Spagnolo, N. (2025). Stock market responses to monetary policy shocks: Firm-level evidence. Journal of Macroeconomics, 83, 103646. https://doi.org/10.1016/j.jmacro.2024.103646.
    6. Arouri, M., Jouini, J., & Nguyen, D. K. (2011). Volatility spillovers between oil and stock markets: A multivariate GARCH approach. Energy Eco-nomics, 33(5), 911–919. https://doi.org/10.1016/j.eneco.2011.01.009.
    7. Balcilar, M., Gupta, R., & Wohar, M. E. (2018). Geopolitical risks and oil markets: New evidence. Energy Economics, 72, 636–651. https://doi.org/10.1016/j.eneco.2018.04.006.
    8. Barro, R. J. (2006). Rare disasters and asset markets in the twentieth century. Quarterly Journal of Economics, 121(3), 823–866. https://doi.org/10.1162/qjec.121.3.823.
    9. Bekaert, G., Harvey, C. R., Lundblad, C., & Siegel, S. (2007). Global growth opportunities and market integration. The Journal of Finance, 62(3), 1081–1137. https://doi.org/10.1111/j.1540-6261.2007.01231.x.
    10. Baumeister, C., & Kilian, L. (2016). Understanding the decline in the price of oil since June 2014. Journal of the Association of Environmental and Resource Economists, 3(1), 131–158. https://doi.org/10.1086/684160.
    11. Baur, D. G., & Lucey, B. M. (2010). Is gold a hedge or a safe haven? Financial Review, 45(2), 217–229. https://doi.org/10.1111/j.1540-6288.2010.00244.x.
    12. Beber, A., & Brandt, M. W. (2006). Resolving macroeconomic uncertainty in stock and bond markets. NBER Working Paper 12270. https://doi.org/10.3386/w12270.
    13. Bloom, N. (2009). The impact of uncertainty shocks. Econometrica, 77(3), 623–685. https://doi.org/10.3982/ECTA6248.
    14. Bilson, C. M., Brailsford, T. J., & Hooper, V. C. (2001). The explanatory power of political risk in emerging markets. International Review of Fi-nancial Analysis, 11(1), 1–27. https://doi.org/10.1016/S1057-5219(01)00067-9.
    15. Bouri, E., Demirer, R., Gupta, R., & Pierdzioch, C. (2019). Geopolitical risks and stock market volatility: A global analysis. Journal of International Financial Markets, Institutions & Money, 63, 101–117.
    16. Bouri, E., Gupta, R., & Roubaud, D. (2021). Geopolitical risk and financial markets: A review. Finance Research Letters, 38, 101428. https://doi.org/10.1016/j.frl.2020.101428.
    17. Bouri, E., Hammoud, R., & Kassm, C. A. (2023). The effect of oil implied volatility and geopolitical risk on GCC stock sectors. Energy Economics, 120, 106617. https://doi.org/10.1016/j.eneco.2023.106617.
    18. Caldara, D., & Iacoviello, M. (2022). Measuring geopolitical risk. American Economic Review, 112(4), 1194–1225. https://doi.org/10.1257/aer.20191811.
    19. Chen, A. H., & Siems, T. F. (2004). The effects of terrorism on global capital markets. European Journal of Political Economy, 20(2), 349–366. https://doi.org/10.1016/j.ejpoleco.2003.12.005.
    20. EIA. (2024a). Daily Brent crude oil spot prices. U.S. Energy Information Administration. https://www.eia.gov.
    21. EIA. (2024b). Middle East oil supply disruptions. U.S. Energy Information Administration.
    22. Filis, G., Degiannakis, S., & Floros, C. (2011). Dynamic correlation between stock market and oil prices. International Review of Financial Analysis, 20(3), 152–164. https://doi.org/10.1016/j.irfa.2011.02.014.
    23. Gupta, R., Lau, C. K. M., & Wohar, M. E. (2022). Geopolitical risk and asset returns. International Review of Financial Analysis, 82, 102171. https://doi.org/10.1016/j.irfa.2022.102171.
    24. Hammoudeh, S., & Li, H. (2008). Oil sensitivity and systematic risk in oil-sensitive stock markets. Energy Economics, 30(5), 2831–2852. https://doi.org/10.1016/j.eneco.2008.04.002.
    25. Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decisions under risk. Econometrica, 47(2), 263–291. https://doi.org/10.2307/1914185.
    26. Kilian, L. (2009). Not all oil price shocks are alike. American Economic Review, 99(3), 1053–1069. https://doi.org/10.1257/aer.99.3.1053 (doi.org in Bing).
    27. Kumar, K., & Singh, B. (2025). Geopolitical risks and financial markets: A 27 year bibliometric study. International Journal of Trade and Global Markets, 21(4), 462–484. https://doi.org/10.1504/IJTGM.2025.148622.
    28. MacKinlay, A. C. (1997). Event studies in economics and finance. Journal of Economic Literature, 35(1), 13–39.
    29. Narayan, P. K., & Gupta, R. (2015). Has oil price predicted stock returns? Energy Economics, 48, 18–23. https://doi.org/10.1016/j.eneco.2014.12.003.
    30. Nelson, D. B. (1991). Conditional heteroskedasticity in asset returns. Econometrica, 59(2), 347–370. https://doi.org/10.2307/2938260.
    31. Özdemir, L., Vurur, N. S., Ozen, E., Świecka, B., & Grima, S. (2025). Volatility modeling of geopolitical risk on commodity markets. Economies, 13(4). https://doi.org/10.3390/economies13040088.
    32. Pandey, D. K. (2025). Effects of Israel–Iran conflict: Insights on global stock indices and currencies. Journal of Economic Studies, 52(4), 762–783. https://doi.org/10.1108/JES-04-2024-0286.
    33. Pastor, L., & Veronesi, P. (2013). Political uncertainty and risk premia. Journal of Financial Economics, 110(3), 520–545. https://doi.org/10.1016/j.jfineco.2013.08.007.
    34. Reuters. (2024). Israel–Iran escalation timeline. Reuters News Service. https://www.reuters.com.
    35. Sungurtekin Hallam, B. (2022). Emerging market responses to external shocks. Economic Modelling, 115, 105948. https://doi.org/10.1016/j.econmod.2022.105948.
    36. Tadawul. (2024). Saudi Exchange historical market data. https://www.saudiexchange.sa.
    37. Vanguard. (2026). The potential impact of high oil prices on economies. Vanguard Research.
    38. Zakoian, J. (1994). Threshold heteroskedastic models. Journal of Economic Dynamics and Control, 18(5), 931–955. https://doi.org/10.1016/0165-1889(94)90039-6 (doi.org in Bing).
    39. Alasgarova, R. (2025). Language retention and identity dynamics: Assessing first language attrition in bilingual adolescents. The Barcelona Confer-ence on Education 2024 Proceedings, 119–134. https://doi.org/10.22492/issn.2435-9467.2024.13.

  • Downloads

  • How to Cite

    Al Nafea, D. F. S. M. (2026). Geopolitical Escalation, Oil Price Moderation, and Asymmetric Market Responses: Evidence from The Saudi Financial ‎Market Using Event Study And GARCH Models. International Journal of Accounting and Economics Studies, 13(2), 557-565. https://doi.org/10.14419/pdq7fj65