Market Reaction to Middle East Geopolitical Shocks: Evidence from Iran Conflict Escalation and Energy Stocks on the Indonesia Stock Exchange

Alana Sabila

doi:10.55047/jekombital.v5i1.1224

Authors

Alana Sabila* Faculty of Economics and Business, Universitas Diponegoro, Semarang, Indonesia

DOI:

https://doi.org/10.55047/jekombital.v5i1.1224

Keywords:

Abnormal Returns, Energy Equities, Event Study, Geopolitical Uncertainty, Market Efficiency

Abstract

The escalation of the Iran conflict, which threatens global energy supply through the Strait of Hormuz, raises the question of how energy sector stocks on the Indonesia Stock Exchange (IDX) respond to such geopolitical risk. The study aims to determine whether the conflict generates significant abnormal returns and cumulative market effects and to assess the speed of investor response to the geopolitical shock. A quantitative event study design is employed using daily stock returns over an 11-day event window from H-5 to H+5. Expected returns are estimated using the Market Model, while abnormal returns (AR) and cumulative abnormal returns (CAR) are evaluated using a one-sample t-test. The results show a significant negative abnormal return of -1.93% on H-1 (p < 0.01), indicating an anticipatory market response before the event. No significant abnormal returns are observed on H=0 and H+1, suggesting that the market rapidly incorporated the publicly available information. However, the cumulative abnormal return reaches -19.24% (p < 0.001) over the event window, indicating a substantial and persistent decline in the valuation of energy stocks. The findings imply that geopolitical shocks affect emerging-market energy equities not only through immediate information effects but also through persistent uncertainty and risk repricing. These results are relevant for investors in managing geopolitical exposure and for policymakers and market regulators in strengthening market resilience during periods of heightened geopolitical uncertainty.

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