Geopolitical risks and the energy-stock market nexus: Evidence from Turkiye

Abstract

The goal of this study is to examine the role of geopolitical risks as a driver of stock market returns in the context of the energy-stock market nexus with a particular emphasis on the intermediary role of energy supply for Turkiye. Our findings confirm the role of GPRs as a net transmitter of shocks to the stock market. However, while electricity supply is a net receiver of GPR induced shocks during negative market states, it assumes a leading role as a net transmitter of positive shocks in the network with the shocks largely transmitted towards the stock market returns. Furthermore, we show that the structural reforms implemented by the Energy Market Regulatory Authority (EMRA) towards liberalization of the energy sector has led to a shift in the role of electricity supply as a net transmitter of shocks to financial markets.