Relationship between Country-Specific Geopolitical Risk and Defense Sector Index
Chapter from the book:
Yılmaz,
E.
S.
(ed.)
2024.
Academic Research and Evaluations in the Field of Social Sciences-III.
Synopsis
The defense industry is an industrial branch that receives state-supported investments and has areas of activity such as military research and development projects, equipping military personnel and production of weapon systems. The defense industry is more important especially for the countries that are under the threat of war due to their geopolitical location, have problems with border security and do not have good relations with their neighbors. Since geopolitical risk is higher in such countries, more investments are made in the defense industry, and the situation should be carefully monitored by stock investors investing in the sector. Defense industry expenditures, which vary depending on changes in geopolitical risk, also cause variability in the stock prices of companies operating in the sector. In this context, the main purpose of the study is to determine the relationships between geopolitical risks of countries and the defense sector index. For this purpose, the relationships between the geopolitical risk index of each country and the defense sector of the relevant country were analyzed with Fractional Frequency Flexible Fourier Form Toda and Yamamoto causality test developed by Pata and Yilanci (2020). The empirical findings indicate that there are permanent causal relationships from geopolitical risk to the defense sector stock price index in most of the countries examined, and that these relationships do not differ depending on regional or market development. The results show that it would be beneficial for investors investing in the defense sector to make investment decisions by taking into account the effects that the geopolitical risk index may have on stock prices and that they can earn income from the price movements that may be created by changes in the index.
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Copyright (c) 2024 Emrah Sıtkı Yılmaz; Şahin Çaylı, Ebru Açık Turğuter, Ebrar Elveren, Selahattin Taylan, Salih Köseoğlu, Mehmet Yıldırım, Ayşe Yaşar Ümütlü, Turgay Toksoy, Özlem Balaban, Fazilet Nohut, Ahmet Küçük, Umut Turgut Yıldırım, Osman Ağır, Halil İbrahim Ada, Ezgi Tokdil, Erdoğan Keleş, Zeynep İskefiyeli, Fikrettin Yavuz, Berna İleri, Tuğba Konuk, Murat Nazlı, Bahar Moazami, Fatima Alwash, Mahmut Uçaktürk