Market dynamics in response to geopolitical risk and its influence on banks stock returns

This paper investigates the impact of geopolitical risk, company traits, and macroeconomic factors on the stock returns of Egyptian Stock Exchange-listed financial institutions. During the period 2014–2023, the research examines a panel dataset including ten Egyptian financial institutions. The study investigates the impact of geopolitical risk, liquidity risk, profitability, growth possibilities, capital adequacy, inflation, and GDP on stock returns using the Generalized Method of Moments (GMM) regression technique. The findings show a significant and favorable connection between geopolitical risk and stock returns. Positive and significant effects on stock returns also come from profitability, expansion prospects, capital adequacy, and inflation. By comparison, GDP and liquidity risk show rather strong negative correlations with stock returns. Policymakers, bank management, and investors should all benefit from the results. Understanding how geopolitics and liquidity concerns influence stock performance can guide regulatory policies, risk management techniques, and investment strategies aimed at stabilizing the financial system in unstable environments. This research contributes to the limited body of literature examining how geopolitical risk affects stock returns in Egypt, an emerging economy. It emphasizes the important role that internal bank features play in building financial resilience against external shocks.