Does Geopolitical Risk Influence China’s Defence Sector Returns?

Abstract This study utilizes a rolling window Granger test to investigate how global geopolitical tension affects returns in China’s defence sector. The results reveal a highly dynamic and nonlinear relationship between geopolitical risk and the industry’s stock market performance. Notably, our findings suggest that geopolitical risk has recently become a significant predictor of the market return of the defence sector. These results contribute to the existing literature on the impact of geopolitical uncertainties on China’s financial markets and offer new insights into the relationship between international security and the stock market performance of defence contractors. We discuss the implications of this research at the end.