An Analysis of the Influence of Geopolitical Risk on the Efficiency of Chinese Equity Market

This research examines the influence of geopolitical risk on the pricing efficiency of the Chinese equity market. The emergence of the epidemic and the prevalence of geopolitical events have altered geopolitical risk, resulting in a substantial rise in financial market volatility. This study intends to examine the process by which geopolitical risk influences price efficiency. Geopolitical risk (GPR) and information rates (IR) are first chosen, and a vector autoregressive model is developed to thoroughly investigate the direct long-term link between GPR and IR in Chinese equity market. The research indicates that: i) An increase in geopolitical risk results in a long-term decrease in pricing efficiency within the Chinese equity market. ii) The effect gradually diminishes over time, indicating that the market can assimilate the knowledge in the long term, so restoring price efficiency to a stable state. iii) The influence of geopolitical risk on the pricing efficiency of the Chinese equity market during the epidemic was significantly more pronounced. iv) The Chinese equity market is now regarded as inefficient, with an anticipated enhancement in its capacity to assimilate and process information in the near term. The results are enlightening for investors and policymakers. It offers significant insights into the correlation between pricing efficiency and geopolitical risk in the Chinese equity market.