The Effects of Geopolitical Risks on Market Returns in a Frontier Market: Evidence from Ho Chi Minh Stock Exchange

This study is the first to investigate the effects of geopolitical risks on stock market returns for the Ho Chi Minh Stock Exchange (HOSE). The data used in this study consist of daily VN30-Index, geopolitical risk act (GPRA) Index and geopolitical risk threat (GPRT) Index covering the period from February 6th 2012 to December 29th 2023. Using an autoregressive distributed lag (ARDL) bounds testing approach, the empirical findings confirm that GPRT has significantly negative effects on the HOSE's returns in both the short-term and long-term. Specifically, one percent increase in the GPRT index is associated with 0.135 percent and 0.146 percent decrease in the short-term and long-term market returns, respectively. However, the results derived from the ARDL model reveal that GPRA has no impact on the market returns in both the short-term and long-term. In addition, the findings obtained from the error correction model (ECM) show that 92.28 percent of the movements into disequilibrium in the current trading day are adjusted back to the long-term equilibrium in the next trading day.