Geopolitical Risk and Stock Returns: Evidence from an Emerging Market

From an investor’s perspective, this study examines the impact of geopolitical risk (GPR) on stock returns in Vietnam, an emerging market characterized by high sensitivity to global shocks. Using monthly data for all listed companies between January 2010 and December 2023, we employ a panel fixed effects model as the primary specification to control for unobserved firm heterogeneity. The results reveal a statistically significant negative relationship between GPR and stock returns, indicating that geopolitical uncertainty erodes investor confidence and market performance. Consistent with the risk–return trade-off, firms more sensitive to GPR (higher GPR β ) exhibit higher expected returns, reflecting investors’ demand for compensation for elevated risk. Robustness checks using pooled OLS confirm the stability of the findings. By focusing on an emerging market context, this study contributes novel evidence on how geopolitical shocks shape financial outcomes and highlights the importance of integrating GPR measures into risk assessment and investment strategies. JEL Classification: G12, G14, F51