Do Financial Markets Predict Geopolitical Risk? Panel Causality Findings

This study examines the relationship between global and country-specific geopolitical risk indices and stock market index returns in selected developed and developing countries. Monthly data on geopolitical risk indices and stock market indices for the period from January 2002 to February 2026 were analyzed using the Dumitrescu-Hurlin panel causality test. The findings indicate substantial differences in the direction and scope of the relationship between the variables. At the panel level, no causality is detected from geopolitical risk levels to stock market returns. However, unidirectional causality is identified from stock market returns to both global geopolitical risk and country-specific geopolitical risk levels. The country-specific findings show bidirectional causality between global geopolitical risk and stock market returns in Türkiye. Conversely, there is a unidirectional relationship running from stock market returns to global geopolitical risk in the United Kingdom, Japan, and South Africa. Similarly, unidirectional causality from stock market returns to country-specific geopolitical risk is observed for Brazil, China, and Germany.