The Effect of Major Geopolitical Shocks on GCC Stock Markets: An Event Study and GARCH Approach

This study examines the impact of two major geopolitical shocks, the Russia-Ukraine war (2022) and the Hamas-Israel conflict (2023), on stock market returns and volatility in five Gulf Cooperation Council (GCC) countries: Saudi Arabia, United Arab Emirates (Abu Dhabi and Dubai), Qatar, and Kuwait. Given the region’s geopolitical sensitivity and reliance on energy exports, the research aims to understand how such conflicts affect market behavior and risk perception. A combination of Event Study Methodology and Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) modeling is employed. The event study identifies abnormal and cumulative abnormal returns over a 30-day window post-event, while the EGARCH model captures volatility patterns, including asymmetry, persistence, and leverage effects. The Russia-Ukraine war led to short-term positive abnormal returns in energy-exporting markets, likely driven by expectations of rising oil prices. In contrast, the Hamas-Israel conflict resulted in significant negative returns in Saudi Arabia, Abu Dhabi, and Dubai. Volatility responses were also varied: Dubai exhibited mean-reverting behavior with amplified short-term shocks, while Qatar and Kuwait experienced increased and persistent volatility. This study uniquely integrates event study and EGARCH approaches in a multi-country GCC context. Furthermore, the study revealed significant heterogeneity across GCC markets, suggesting that the impact of geopolitical conflicts depends on both the nature of the shock and country-specific characteristics. Thus, GCC economies should not be treated as a homogeneous unit; rather, researchers should account for country-specific characteristics when examining the financial effects of geopolitical events.