Have Markets Learned to Adapt? Measuring Resilience to Geopolitical Shocks Using Event Study Methodology

Abstract

The geopolitical uncertainties post-pandemic can be considered as a highly volatile, uncertain, complex and ambiguous (VUCA) phenomenon. This study investigates the impact of VUCA events on the market reactions of top global economies, employing event study methodology. The study also employs a non-parametric bootstrap procedure to validate statistical robustness. The study includes markets from the Asia-Pacific, the Americas and the European region. In the pre-pandemic period, the market reactions were short-lived and consistent with efficient processing of volatility. In the post-pandemic period, the reactions sustained across the event window, indicating deeper assimilation cascading and complex risks. The market displayed selective sensitivity, indicating a paradigm shift in the global order. The market demonstrated resilience, as the majority of geopolitical and terrorist events did not trigger significant abnormal returns. The originality of this study is that it provides a holistic, multi-event and multi-country analysis of VUCA events. The study also reconciles efficient market hypothesis with VUCA dynamics by showing that efficiency is context-dependent and documents that the market has moved from quick reaction to sustained assimilation.