Yuda uddin, Rizky; Lesmana, Dadang; Ekşi, İb ahim Halil; Ginn, William; Tabash,
Mosab I.
A icle
The Red Sea con lic and ma ke eac ions: Examining he
ole o mili a y s eng h in inancial ma ke s
Peace Economics, Peace Science and Public Policy (PEPS)
P o ided in Coope a ion wi h:
De G uy e B ill
Sugges ed Ci a ion: Yuda uddin, Rizky; Lesmana, Dadang; Ekşi, İb ahim Halil; Ginn, William; Tabash,
Mosab I. (2025) : The Red Sea con lic and ma ke eac ions: Examining he ole o mili a y s eng h
in inancial ma ke s, Peace Economics, Peace Science and Public Policy (PEPS), ISSN 1554-8597, De
G uy e , Be lin, Vol. 31, Iss. 2, pp. 193-227,
h ps://doi.o g/10.1515/peps-2024-0052
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/333343
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Rizky Yuda uddin, Dadang Lesmana, İb ahim Halil EKŞİ,
William Ginn and Mosab I. Tabash*
The Red Sea Conflic and Ma ke Reac ions:
Examining he Role o Mili a y S eng h in
Financial Ma ke s
h ps://doi.o g/10.1515/peps-2024-0052
Recei ed Decembe 2, 2024; accep ed Ma ch 30, 2025; published online Ap il 16, 2025
Abs ac : This s udy examines ma ke eac ions o he US-Hou hi conflic on
Janua y 11, 2024, ac oss a ious ma ke s, egions, and indus ies wi hin he financial
sec o , emphasizing he ole o mili a y s eng h in shaping global financial
esponses. An e en s udy me hodology is applied o a sample o 3,239 financial sec o
companies, obse ing ma ke eac ions o e mul iple e en windows: a 15-day p e-
e en phase and a 15-day pos -e en phase su ounding he conflic announcemen .
C oss-sec ional analysis is conduc ed o assess how mili a y s eng h impac s
financial ma ke eac ions. The esul s indica e significan ma ke ulne abili y o
he US-Hou hi conflic , pa icula ly du ing he pe iod om he e en day on Janua y
11, 2024, o he pos -e en phase, wi h de eloped ma ke s expe iencing he g ea es
impac . While Ame ican ma ke s showed mixed esponses, Eu opean, Middle
Eas e n, and A ican ma ke s aced no able nega i e effec s due o dis up ed ade
ou es; Asian ma ke s also showed nega i e eac ions, hough o a lesse ex en . The
banking indus y eco ded he mos ad e se eac ion wi hin he financial sec o , and
mili a y s eng h eme ged as a c i ical ac o influencing in es o beha io in
esponse o he conflic . These findings highligh he need o policymake s o
enhance financial ma ke s abili y by conside ing mili a y s eng h and ade ou e
secu i y in isk mi iga ion s a egies, pa icula ly in imes o geopoli ical unce ain y,
such as he pe iod su ounding he US-Hou hi conflic in ea ly 2024.
Keywo ds: US-Hou hi conflic ; ma ke eac ion; e en s udy; financial sec o ;
mili a y s eng h
*Co esponding au ho : Mosab I. Tabash, College o Business, Al Ain Uni e si y, Al Ain, Uni ed A ab
Emi a es, E-mail: [email p o ec ed]
Rizky Yuda uddin, Depa men o Managemen , Mulawa man Uni e si y, Sama inda, Indonesia
Dadang Lesmana, Resea ch and Inno a ion Agency Region Eas Ku ai, Sanga a, Indonesia
İb ahim Halil EKŞİ,Facul y o Economics and Adminis a i e Sciences, Gazian ep Uni e si y, Gazian ep,
Tü kiye
William Ginn, Labco p, S . Economis , A ificial In elligence, USA and Cobu g Uni e si y o Applied
Sciences, Cobu g, Ge many
Peace Econ. Peace Sci. Pub. Pol. 2025; 31(2): 193–227
Open Access. © 2025 he au ho (s), published by De G uy e . This wo k is licensed unde he
C ea i e Commons A ibu ion 4.0 In e na ional License.
JEL Classifica ion: G39; G41; F51; D53; E44
1 In oduc ion
The wo ld has expe ienced heigh ened geopoli ical isks in he las decade
compa ed o p e ious e as, and he in ensi y o hese isks has become a significan
conce n o in es o s, especially in ecen e en s such as he US-China ade wa ,
he Is ael-Hamas conflic , and he Russia-Uk aine wa . Among hese e en s, he
financial sec o is equen ly nega i ely impac ed by geopoli ical isks (Boubake
e al. 2023; Chen and Sun 2024; Hunj a e al. 2024; Lesmana and Yuda uddin 2024a;
Pandey e al. 2024; Pola e al. 2023; Pola , Başa , and Ekşi 2024; Shi, Wang, and Ke
2021; Vu e al. 2023; Yuda uddin e al. 2024a,b). Geopoli ical isks a e closely linked
o he financial sec o due o hei significan impac on ma ke s abili y and
in es o beha io . E en s such as wa s, ade conflic s, and poli ical uphea als
c ea e unce ain y, leading o ma ke ola ili y and dis up ing financial ma ke s.
Fo ins ance, geopoli ical conflic s can affec commodi y p ices, including c ucial
esou ces like oil and na u al gas, which in u n influence infla ion and economic
g ow h (Baba , Ahmad, and Yousa 2023; Yousa e al. 2023; Yuda uddin and Les-
mana 2024b; Yasmeen and Shah 2024). Addi ionally, hese e en s o en esul in
shi s in go e nmen policies and egula o y amewo ks, u he des abilizing
financial ma ke s. In es o sen imen ends o eac nega i ely o geopoli ical
ensions, causing fluc ua ions in s ock p ices, o eign exchange a es, and bond
yields (Assa , Gup a, and Kuma 2023; Ngo, Nguyen, and Hoang 2024; Hassan e al.
2022; Jawadi e al. 2024). Consequen ly, he financial sec o , including banking,
in es men , and insu ance indus ies, becomes pa icula ly ulne able o he
ad e se effec s o geopoli ical isks, as seen in a ious ecen global conflic s. This
ela ionship unde sco es he impo ance o effec i e isk managemen s a egies
o financial ins i u ions o mi iga e he impac s o geopoli ical unce ain ies.
Recen ly, he US-Hou hi conflic has in ensified as he US and he UK ha e
launched a se ies o s ikes on Yemen, a ge ing he I an-aligned Hou hi ebels who
ha e been a acking in e na ional shipping in he Red Sea. The Hou his, who suppo
he Pales inian g oup Hamas, condemned hese s ikes as “ba ba ic”and issued a
s a emen decla ing ha “all US and UK in e es s ha e become ‘legi ima e a ge s’.”
1
This conflic is pa o a b oade egional powe s uggle, wi h he Hou his ecei ing
backing om I an, and i has significan implica ions o in e na ional ma i ime
1h ps://www.aljazee a.com/news/2024/1/12/wo ld- eac s- o-us-uk-a acks-on-hou hi- a ge s-in-
yemen [Las accessed on Ma ch 25, 2025].
194 R. Yuda uddin e al.
secu i y and geopoli ical s abili y.
2
The Hou his’ h ea s unde sco e he po en ial o
u he escala ion, impac ing no only he egion bu also global ade ou es and
in e na ional ela ions. Conside ing he escala ing conflic and he Hou his’ h ea s
agains US and UK in e es s, i is c ucial o unde s and he b oade implica ions
beyond immedia e secu i y conce ns.
One significan aspec ha wa an s examina ion is he impac o such geopo-
li ical ensions on he financial sec o . The e o e, he e a e h ee main mo i a ions in
his s udy. Fi s , se e al s udies ha e indica ed ha he financial sec o , pa icula ly
banking, is highly ulne able o conflic s such as wa s. Mili a y deploymen s a
bo de a eas o en se e as “bad”news o in es o s in he banking sec o (Boubake
e al. 2023; Ma ins and C ó 2023; Vu e al. 2023; Yuda uddin and Lesmana 2024a).
Howe e , mos o hese s udies ocus on he Russia-Uk aine conflic , which in ol es
financial sanc ions be ween Russia and he Eu opean Union. This aises he ques ion
o how he financial sec o ma ke eac s o conflic s ha do no in ol e financial
sanc ions, c ea ing a esea ch gap ha needs o be add essed. Second, p e ious
esea ch has p ima ily concen a ed on he banking indus y, ailing o p o ide a
comp ehensi e iew o he en i e financial sec o .
Addi ionally, ac o s such as mili a y s eng h, which a e pe inen o wa , ha e
no been ho oughly explo ed in p e ious s udies. Thi d, he US-Hou hi conflic is
s a egically significan due o i s loca ion along majo ade ou es be ween Asia,
A ica, Eu ope, and Ame ica. Essallamy, Ba i, and Ko b (2020) and Wu e al. (2022)
highligh ed he c ucial ole o he Red Sea ou e h ough he Suez Canal, analyzing i s
effec i eness and cos efficiency compa ed o he Cape o Good Hope ou e. Recen ly,
howe e , ensions in he Red Sea ha e led companies in Asia o p e e he Cape o
Good Hope ou e o a oid isks, esul ing in a sha p decline in Suez Canal ansi and
an inc ease in Cape o Good Hope affic. The Panama Canal has also expe ienced a
decline, albei less se e e han he Suez Canal.
3
Yuda uddin e al. (2025) showed ha
he US-Hou hi conflic had a nega i e impac on he ma ke in he consume cyclical
sec o . This s udy hus seeks o assess he po en ial nega i e impac o he US-Hou hi
conflic on he financial sec o ’s s ock ma ke .
To add ess his gap, ou s udy is he fi s o in es iga e ma ke eac ions o he
US-Hou hi conflic wi hin he financial sec o . We analyze ma ke eac ions om
15 days be o e o 15 days a e he e en , using Janua y 11, 2024, as he e en day. Ou
esea ch findings add ess he gap in p e ious esea ch by demons a ing ha in-
es o s in he financial sec o exhibi a “nega i e”sensi i i y o wa . This is e iden
2h ps://edi ion.cnn.com/middleeas /li e-news/is ael-hamas-wa -gaza-news-01-11-24/index.h ml
[Las accessed on Ma ch 26, 2025].
3h ps://www.im .o g/en/Blogs/A icles/2024/03/07/Red-Sea-A acks-Dis up -Global-T ade [Las
accessed on Ma ch 25, 2025].
The Red Sea Conflic and Ma ke Reac ions 195
om he significan nega i e ma ke eac ion o he US-Hou hi conflic and i s
a e ma h. These esul s ein o ce p e ious findings ha he financial sys em is
highly in eg a ed and ha mac oeconomic shocks inc ease sys emic isk. Fu he -
mo e, we find ha he banking indus y exhibi s highe ulne abili y compa ed o
o he indus ies. Ou esul s confi m ha he banking ma ke eac s significan ly
nega i ely o global unce ain ies, including geopoli ical isks, e en in he absence o
financial sanc ions. Ou findings also p o ide insigh s o companies ega ding he
impo ance o mili a y s eng h and company cha ac e is ics in managing geopo-
li ical isks. We find ha while mili a y powe is no a c i ical ac o in he absence o
wa , i becomes i al du ing conflic s, influencing ma ke eac ions o geopoli ical
isks.
This pape is o ganized in o fi e sec ions. The ele an li e a u e is b iefly
discussed in Sec ion 2. The me hodology is p esen ed in Sec ion 3. In Sec ion 4, he
da a and main empi ical findings a e displayed. The las sec ion concludes.
2 Li e a u e Re iew
In ecen yea s, many academics and p ac i ione s ha e analyzed he impac o
geopoli ical conflic s pa icula ly wa e en s ha e a - eaching effec s ac oss a ious
sec o s. Tajaddini and Gholipou (2023) ound ha s ock ma ke s declined mo e in
coun ies wi h s ong ade ies o Russia and Uk aine du ing he Russia-Uk aine
wa , hough ade openness mi iga ed he impac . Simila ly, Boubake e al. (2022)
and Boungou and Ya i´e (2022) epo ed ha he Uk aine-Russia wa caused global
s ock declines, hi ing globalized economies, neighbo ing coun ies, and UN c i ics
ha des , while NATO ma ke s showed esilience. Ma ins and C ó (2023) illus a ed
his by highligh ing he dis up ions in fligh ou es caused by conflic s, which led
ai lines o a oid ai space nea wa - o n egions. Consequen ly, hese limi a ions on
fligh ou es ha e esul ed in de e io a ing a ia ion pe o mance o companies
ope a ing in such a eas. Simila ly, Yuda uddin e al. (2023) iden ified a dis up ion in
he ag icul u al supply chain in conflic - idden na ions like Uk aine, a significan
expo e o whea . This dis up ion igge ed p ice hikes in a ious ag icul u al
commodi ies, posing challenges o in es o s conce ned abou handling
geopoli ical isks. Fu he mo e, he eal es a e sec o was no immune o hese
effec s (Yuda uddin and Lesmana 2024c). Co se i e al. (2012) emphasized ha
inc easing so e eign isk adds new p essu e o a coun y’s economic s abili y amid
geopoli ical p essu es. As a esul , in es o s a e conce ned abou he le el o so -
e eign isk ha affec s hei business ope a ions. Coun y isk, which includes legal,
economic, and ins i u ional dimensions, inc easingly de e s in es o s om engaging
196 R. Yuda uddin e al.
in business ac i i ies in ha en i onmen (Les a i e al. 2022). As a esul , he le el o
coun y isk inc eases unce ain y, which has a majo impac on financial ma ke s in
bo h de eloping and de eloped coun ies (Hoque and Zaidi 2020).
Geopoli ical isks a e also closely linked o he financial sec o due o hei
significan impac on ma ke s abili y and in es o beha io . In es o sen imen
ends o eac nega i ely o geopoli ical ensions, causing fluc ua ions in s ock
p ices, so e eign weal h unds, o eign exchange a es, and bond yields (Assa ,
Gup a, and Kuma 2023; Ngo, Nguyen, and Hoang 2024; Bales a e al. 2024; Hassan
e al. 2022; Jawadi e al. 2024). Consequen ly, he financial sec o o en expe iences
ad e se effec s as a esul o hese geopoli ical isks (Shi, Wang, and Ke 2021; Chen
and Sun 2024; Pandey e al. 2024; Lesmana and Yuda uddin 2024b; Boubake e al.
2023; Vu e al. 2023; Vuong e al. 2024). Shapi o,Swi ze ,andMas oianni(1999)
examined he esponse o a po olio o de ense con ac o s o wa - and peace-
ela ed e en s, finding ha he de ense po olio esponds posi i ely o wa - ela ed
announcemen s and nega i ely o peace- ela ed announcemen s. Mo eo e ,
esea ch by Yuda uddin and Lesmana (2024a) and Boubake e al. (2023)
unde sco es he ulne abili y o he global banking sec o o geopoli ical
unce ain ies. Pas conflic s ha e led o he imposi ion o banking access sanc ions
on wa ing na ions, ampli ying isks wi hin he banking. This ulne abili y is also
igge ed by he highly in eg a ed financial sys em h oughou he wo ld, he
p esence o ex e nal dis u bances c ea es inc eased sys emic isk. In addi ion, he
exis ence o geopoli ical isks also aises he le el o bank isk which can educe
banking pe o mance (Hunj a e al. 2022).
Mo eo e , se e al s udies ha e examined he epe cussions o wa on financial
ma ke s ac oss diffe en egions. Abbassi, Kuma i, and Pandey (2023) and Kamal,
Ahmed, and Hasan (2023) ocused on de eloped coun ies, while Lesmana and
Yuda uddin (2024b), Yousa , Pa el, and Ya o aya (2022), Oubani (2024), Sayed (2024),
Basne , Blomk is , and Gala io is (2022), and Oyadeyi, A ogundade, and Biyase (2024)
s udied eme ging and on ie ma ke s, wi h specific a en ion o Asia (Lesmana and
Yuda uddin 2024b), Eu ope, and Ame ica (Boubake e al. 2022). Kuma i, Kuma , and
Pandey (2023) ound he impac o wa on financial ma ke s on he EU s ock ma ke s.
Aslam e al. (2021) ound ha e o is a acks, especially on ce ain weekdays,
inc eased s ock ma ke ola ili y and nega i ely impac ed e u ns in Pakis an. These
in es iga ions collec i ely illumina e he mul i ace ed impac o wa on global eco-
nomic sys ems and unde sco e he need o comp ehensi e s a egies o mi iga e
such dis up ions. Meanwhile, Rigobon and Sack (2005) Gu dgie , Hen ichsen, and
Mulhai (2022), and Tee Wong, and Hooy (2023) also ound a nega i e effec o wa on
US financial ma ke s.
The Red Sea Conflic and Ma ke Reac ions 197
Recen ly, he US-Hou hi conflic has become a ocus o a en ion, especially o
coun ies ha use ade ou es ia he Suez Canal, which connec s he Red Sea and
he Medi e anean Sea o he Eu opean and Ame ican con inen s.
4
,
5
,
6
The conflic has
impac ed he ga eway o he Suez Canal, dis up ing ade ou es and o cing essels
o swi ch o he Cape o Good Hope ou e. This shi affec s he ships’condi ion and
longe i y. Specifically, using he Suez Canal is mo e ime-effec i e, educing sailing
ime o Eu ope by app oxima ely 42 % and o he US by 30 % om he Middle Eas . In
con as , he Cape o Good Hope ou e esul s in highe damage a es, wi h 13 % o
Eu ope and 5 % o Ame ica (Essallamy, Ba i, and Ko b 2020). Simila esea ch by Wu
e al. (2022) analyzed he in eg a ion o ade be ween he Suez Canal and he Cape o
Good Hope, ocusing on ime and uel cos effec i eness. Thei findings indica e ha
he Suez Canal plays a much mo e effec i e and efficien ole compa ed o he Cape o
Good Hope ou e. In addi ion, Yap and Yang (2024) ound ha geopoli ical isks
dis up ed shipping ne wo ks connec ing he Asia-Eu ope and Asia-Medi e anean
ade ou es. The dis up ion o he Suez Canal due o he US-Hou hi conflic o ced he
se ice company o use an al e na i e Cape ou e wi h a longe ou e, so he company
added addi ional ships o main ain he equency o s ops.
The US-Hou hi conflic has an impac on inc easing cos s and shipping imes,
which is a “bad”signal o in es o s. Yuda uddin e al. (2023) s a ed ha he impac o
wa can lead o an inc ease in commodi y p ices, which aises p oduc ion cos s and
subsequen ly affec s a company’s pe o mance, po en ially leading o a educ ion in
di idends. Di idends play a c ucial communica ion ole o companies and in es o s
du ing c ises (Hasan 2021). Subsequen ly, Tayachi e al. (2023) s a es ha di idend
policy also looks a se e al aspec s o he han ins i u ional owne ship and company
pe o mance. A dec ease in di idends sends a nega i e signal o in es o s du ing
imes o wa (Yuda uddin and Lesmana 2024c). The eac ion o his can also a y
based on he company’s scale, as he impac o geopoli ical isk is closely associa ed
wi h medium and la ge-scale companies engaged in in e na ional ade (Kamal,
Ahmed, and Hasan 2023). Addi ionally, Chesney, Ka aman, and Reshe a (2011) and
Co be , Gu dgie , and Meegan (2017) demons a ed ha e o is ac i i ies d i e
s ock ma ke ola ili y.
The economic epe cussions o he US-Hou hi conflic ex end beyond dis up ed
ade ou es and inc eased shipping cos s, affec ing a ious sec o s and influencing
in es o beha io . The conflic ’s impac on ma i ime ade and commodi y p ices
4h ps://www. hegua dian.com/wo ld/2024/jan/03/wha -is- he- ed-sea-c isis-and-wha -does-i -
mean- o -global- ade [Las accessed on Ma ch 25, 2025].
5h ps://www. hegua dian.com/business/2023/dec/19/ ed-sea-shipping-c isis-bp-oil-explained-
wha -is-happening-and-wha -does-i -mean- o -global- ade [Las accessed on Ma ch 26, 2025].
6h ps://iea.blob.co e.windows.ne /asse s/0a3c8da7-43ad-4511-a0ff-932 d8d0825a/SuezCanal-Fac -
shee .pd [Las accessed on Ma ch 26, 2025].
198 R. Yuda uddin e al.
sends nega i e signals o in es o s, highligh ing he b oade implica ions o geopo-
li ical ensions on financial s abili y. The e o e, mili a y s eng h plays a c ucial ole
in shaping in es o sen imen and ma ke eac ions ac oss a ious financial sec o s,
including banking se ices, collec i e in es men s, insu ance, in es men banking
and in es men se ices, and in es men holding companies. Gu dgie , Hen ichsen,
and Mulhai (2022) analyzed he effec s o US mili a y pa icipa ion in bo h di ec and
indi ec o eign conflic s and ound ha de ense budge announcemen s ha e a
complex and dynamic posi i e impac ha is s a is ically significan on de ense
company s ock pe o mance.
Howe e , mili a y spending p esen s wo con as ing aspec s o in es o s
depending on he p e ailing si ua ion. Tu uncu, Bay ak a , and Khan (2024) ound
ha a bidi ec ional ela ionship be ween mili a y expendi u es and geopoli ical isk,
whe e bo h influence each o he and con ibu e o an a ms ace and egional
ins abili . Saba and Ngepah (2019) ound ha , in A ican coun ies, mos a ms
expendi u es do no ha e a causal link o economic g ow h, wi h only wo coun ies
showing a significan ela ionship. In con as , Tsi ou as and Tsounis (2024) indi-
ca ed ha a ms spending exace ba es inequali y in conflic -affec ed coun ies like
G eece, leading o nega i e in es o sen imen owa d mili a y expendi u es in
s able condi ions. Co se i e al. (2012) obse ed ha subs an ial mili a y powe
ein o ces na ional so e eign y, he eby easing in es o conce ns and boos ing
economic s abili y amid geopoli ical ensions. Lowe ing geopoli ical isk can aise
s ock e u ns in bo h eme ging and de eloped economies (Hoque and Zaidi 2020).
Indeed, mili a y s eng h hea ily influences in es o pe cep ions by os e ing a
sense o s abili y and secu i y. A coun y wi h obus mili a y capabili ies is o en
pe cei ed as be e equipped o de end i s in e es s, eassu ing in es o s and helping
o mi iga e nega i e impac s on s ock p ices du ing conflic s. Addi ionally, s ong
mili a y capabili ies usually ansla e in o g ea e geopoli ical influence, de e ing
ad e sa ies and educing he likelihood o p olonged conflic s. This s abilizing effec
can lead o mo e a o able cumula i e abno mal e u ns (CARs), as in es o s
an icipa e quicke conflic esolu ions and lowe isks o escala ion. Con e sely,
Rigobon and Sack (2005) no ed ha ising wa isks in U.S. financial ma ke s lead o
declines in easu y yields and equi y p ices, widening sp eads on low- a ed com-
panies, dolla dep ecia ion, and inc eases in oil p ices. Schneide and Ve a (2006)
also ound ha conflic s ad e sely impac co e financial ma ke s in he Wes e n
wo ld, specifically affec ing s ock indices in Pa is, London, and he Uni ed S a es.
Geopoli ical isks (GPR) play a c ucial ole in shaping mili a y expendi u e
policies and hei subsequen impac on s ock ma ke eac ions. The link be ween
GPR and mili a y expendi u e no only affec s economic s abili y bu also igge s
nega i e s ock ma ke eac ions due o inc eased unce ain y and p essu e on
in es men . Fo ins ance, T an and Vo (2024) ound ha local GPR exe s a g ea e
The Red Sea Conflic and Ma ke Reac ions 199
influence on mili a y spending beha io han global GPR, indica ing ha coun ies
adjus hei de ense policies based on egional h ea s. Menla and Dimi aki (2014)
highligh ed ha he impac o mili a y expendi u e on economic g ow h is s a e-
dependen , whe e inc eased de ense spending can nega i ely affec g ow h du ing
pe iods o slow expansion and high ola ili y. Fu he mo e, Kh aiche, Boud eau, and
Chowdhu y (2023) show ha GPR has a s ong nega i e effec on s ock ma ke
de elopmen , wi h a mo e p onounced impac in No h Ame ica and Eu ope han in
Asia, indica ing ha geopoli ical unce ain y hinde s in es men and capi al ma ke
g ow h.
3 Da a and Me hodology
We collec ed he daily closing p ices o he leading s ock indices sample fi ms in each
coun y om The Wall S ee Jou nal (WSJ) and he in es ing.com websi e (www.
in es ing.com) o he pe iod 1 Decembe 2022 h ough 29 Feb ua y 2024. We also
collec daily closing composi e s ock p ice indexes o he ma ke s om hei con-
s i uen companies. We include all fi ms ha we can ma ch wi h he s ock ma ke
and financial epo s. A e sc eening sample fi ms, he sample in his s udy
comp ised 2,339 companies in he financial sec o ’s s ock ma ke . The dis ibu ion o
sample companies by coun y is p esen ed in Table A1.
We u ilized he e en s udy app oach by Fama e al. (1969). Recen s udies on
ma ke eac ions o he announcemen o wa also use he e en s udy me hod
(Lesmana and Yuda uddin 2024b; Yuda uddin e al. 2023; Yuda uddin and Lesmana.,
2024c; Pandey e al. 2024; Boubake e al. 2023). We also u ilized mul iple e en
windows, including 15 days p io o he in asion announcemen as a p e-in asion
e en and 15 days a e he in asion announcemen as a pos -in asion e en . In
addi ion, we also used he 250 ading days p io o he e en window in o mula ing
a benchma k o no mal e u ns o imp o e accu acy and educe bias in he esul s
o his s udy. This esea ch akes place a he ime o he US-Hou hi conflic on
Janua y 11, 2024
7
,
8
,
9
as an e en day. We measu ed he ma ke eac ion using he
no mal, abno mal and cumula i e abno mal a es o e u n.
7h ps://www.ny imes.com/2024/01/11/us/poli ics/us-hou hi-missile-s ikes.h ml [Las accessed on
Ma ch 26, 2025].
8h ps://edi ion.cnn.com/2024/01/11/poli ics/us-s ikes-hou his-yemen/index.h ml [Las accessed on
Ma ch 26, 2025].
9h ps://www.aljazee a.com/news/2024/1/11/any-us-a ack-on-yemens-hou his-will-no -go-wi hou
[Las accessed on Ma ch 26, 2025].
200 R. Yuda uddin e al.
Table :Cumula i e abno mal e u ns o p e-e en , he e en day, and pos -e en windows by indus y.
Indus y Numbe
o company
P e-e en days E en days Pos -e en days
(−,)(−,)(−,)(−,)(,+)(,+)(,+)(,+)
Banking Se ice , .*** .*** .*** −.** −.** −.*** −. −.**
Collec i e In es men s .*** .*** .*** .*−.*−.*. −.
Insu ance −. −. −. −. . −. −. −.
In es men Banking &
In es men Se ices
, −. . . . −. −.*** −.*** −.*
In es men Holding
Companies
.*** .** . . −. −. −. −.*
No es: CAR s ands o cumula i e abno mal e u n. The o dina e ep esen s he e en window. ***, **, and * a e significan a %, %, and % confidence le els, espec i ely, based on a
one-sample - es agains he null hypo hesis ha CAR equals ze o. Sou ce: Au ho s’calcula ion.
The Red Sea Conflic and Ma ke Reac ions 207
pe o mance o de ense companies, which is s a is ically significan . In he same
ein, Kuma i, Kuma , and Pandey (2023) demons a e ha while de eloped ma ke s
and NATO na ions exhibi posi i e e u ns, abno mal e u ns du ing he pos -e en
window a e nega i ely influenced by economic sanc ions and he ea o educed
expo s.
4.4 The Impac o he US-Hou hi Conflic on Ma ke Reac ions
by Region and Indus y
Table 4 p esen s he cumula i e abno mal e u ns (CARs) ac oss diffe en e en
windows o a ious indus ies in he Ame icas, Eu ope, Middle Eas & A ica, and
Asia & Pacific egions. The esul s indica e dis inc ma ke eac ions be o e, du ing,
and a e he e en . In he Ame icas, he banking sec o expe ienced significan
nega i e CARs on he e en day, ollowed by a pa ial eco e y pos -e en , while he
insu ance sec o showed a s ong posi i e esponse pos -e en . In Eu ope, he
banking and collec i e in es men sec o s had significan posi i e p e-e en CARs,
bu nega i e eac ions pos -e en . In he Middle Eas & A ica, he in es men
banking sec o showed s ong p e-e en gains bu declined significan ly in he pos -
e en window. Finally, in Asia & Pacific, in es men banking and insu ance sec o s
expe ienced nega i e CARs pos -e en , sugges ing a weake ma ke esponse
compa ed o o he egions.
The findings o his s udy indica e ha ma ke eac ions o he US-Hou hi conflic
a y by egion and indus y sec o , eflec ing p e ious empi ical e idence on he
impac o geopoli ical isk on financial s abili y and global in es men . In he
Ame icas, he esul s align wi h he s udies o Hassan e al. (2022) and Jawadi e al.
(2024), which ound ha he banking sec o ends o expe ience significan p essu e
on he e en day due o heigh ened unce ain y bu pa ially eco e s as in es o s
ha e ime o p ocess in o ma ion. Meanwhile, he posi i e pos -e en esponse in he
insu ance sec o sugges s ha in es o s may an icipa e inc eased demand o
insu ance p oduc s due o ising geopoli ical isks, as highligh ed in Chen and Sun
(2024), which emphasizes how geopoli ical c ises can d i e g ow h in he financial
sec o .
In Eu ope, he posi i e p e-e en eac ion in he banking and collec i e in es -
men sec o s, ollowed by nega i e pos -e en pe o mance, indica es ini ial ma ke
specula ion ha la e unde goes co ec ion as he conflic ’s impac becomes clea e .
This finding suppo s he s udy by Vuong e al. (2024), which shows ha ea ly ex-
pec a ions o geopoli ical ensions o en lead o spikes in abno mal e u ns, ollowed
by adjus men s as eal isks ma e ialize. Simila ly, in he Middle Eas & A ica, he
s ong p e-e en gains in he in es men banking sec o , ollowed by a significan
208 R. Yuda uddin e al.
Table :Cumula i e abno mal e u ns o p e-e en , he e en day, and pos -e en windows by egion and indus y.
Indus y Numbe
o company
P e-e en days E en days Pos -e en days
(−,)(−,)(−,)(−,)(,+)(,+)(,+)(,+)
Ame icas
Banking Se ice −. .*** . −.*** −.*** . .*** −.**
Collec i e In es men s . . .*−. −.** −. . −.
Insu ance . . . . −. .*** .*** .
In es men Banking & In es men Se ices . . .*−.*−. .*.** .
In es men Holding Companies . . . −. −. −. . .
Eu ope
Banking Se ice .*** .*** .*. −. −.*** −. −.***
Collec i e In es men s .*** .*** .** .*** −. −.*** . −.
Insu ance .*.*** . . . . .*** .
In es men Banking & In es men Se ices .** .** . . . −. −. −.**
In es men Holding Companies . . −. . . −. . −.
Middle Eas & A ica
Banking Se ice .*** .*** .*** −. .** −. −.** −.**
Collec i e In es men s . −. . . . −. −. −.
Insu ance −. −. .*** −. . . −.** −.**
In es men Banking & In es men Se ices .*** .*** .*** .** . −. −. −.**
In es men Holding Companies .*. . . . . −. −.
Asia & Pacific
Banking Se ice . .*** .** −.*** −. −.*−. −.
Collec i e In es men s . . . −. . . . −.
Insu ance −. −. −. −. −. −. −. −.
In es men Banking & In es men Se ices −. −. −. . −. −.*** −.*** −.***
In es men Holding Companies .** .** . −. −. −. −. −.
No es: CAR s ands o cumula i e abno mal e u n. The o dina e ep esen s he e en window. ***, **, and * a e significan a %, %, and % confidence le els, espec i ely, based on a
one-sample - es agains he null hypo hesis ha CAR equals ze o. Sou ce: Au ho s’calcula ion.
The Red Sea Conflic and Ma ke Reac ions 209
decline pos -e en , eflec ends simila o hose ound in Boubake e al. (2023),
which obse ed ha banks in poli ically uns able egions a e mo e ulne able o
ola ili y due o apidly shi ing in es o expec a ions. In Asia & he Pacific, he weak
pos -e en esponse in he in es men banking and insu ance sec o s sugges s ha
he impac o he US-Hou hi conflic was no as p onounced as in o he egions. This
is consis en wi h he findings o Oubani (2024) and Lesmana and Yuda uddin
(2024b), which sugges ha Asia’s mo e di e sified economic s uc u e may help
mi iga e he di ec effec s o geopoli ical shocks.
4.5 C oss Sec ional Analysis
Addi ionaly, we conduc a c oss-sec ional analysis he impac o mili a y s eng h
on ma ke eac ions in he financial sec o . We also analysis he impac o fi m
cha a e is ic on ma ke eac ion. Table 5 p esen s he desc ip i e s a is ics and he
co ela ion ma ix in Table 6 o o e come he mul icollinea i y p oblem. In Table 7,
ou analysis e eals ha p io o he onse o he wa , mili a y s eng h did no
significan ly influence in es o conce ns. Howe e , once he conflic began, mili a y
s eng h eme ged as a c ucial ac o shaping ma ke eac ions. The da a p esen ed in
Table 7 indica e a significan nega i e ela ionship be ween mili a y s eng h, as
p oxied by he Na ion Powe Index (NPI), and ma ke eac ions wi hin he financial
sec o on bo h he e en day and he pos -e en day. This sugges s ha , while mili a y
s eng h was p e iously a mino conside a ion, i became a p ominen ac o
influencing in es o beha io du ing he conflic .
Table :Summa y s a is ics o a iables (N=,).
Va iables Mean p Median p S d. de .
CAR (−,). −. . . .
CAR (−,). −. . . .
CAR (−,). −. . . .
CAR (−,)−. −. −. . .
CAR (,+)−. −. −. . .
CAR (,+)−. −. −. . .
CAR (,+)−. −. . . .
CAR (,+)−. −. −. . .
NPI . . . . .
ROA −. . . . .
SIZE . . . . .
LEV . . . . .
LIQ . . . . .
CAR, cumula i e abno mal e u ns; NPI, he Na ion’s Powe Index o Pw Indx; ROA, ne income be o e axes o o al
asse ; DIV, dummy a iable, o fi ms ha pay di idends and o no pay. A o al o , companies (.%) pay
di idends, while companies (.%) do no . SIZE, loga i hm o o al asse ; LEV, o al liabili ies o al equi y; LIQ, o al
cu en asse s o o al asse . Sou ce: Au ho s’calcula ion.
210 R. Yuda uddin e al.
The findings demons a e ha s onge mili a y capabili ies a e associa ed wi h
mo e posi i e in es o eac ions. This ela ionship unde sco es he ole o mili a y
s eng h in shaping in es o pe cep ions o s abili y and secu i y. Coun ies wi h
obus mili a y o ces a e pe cei ed as be e equipped o sa egua d hei in e es s,
which can ins ill confidence among in es o s and mi iga e he ad e se effec s on
s ock p ices du ing pe iods o conflic . Consequen ly, he p esence o a s ong mili-
a y can eassu e in es o s by educing pe cei ed isks associa ed wi h geopoli ical
ins abili y.
These esul s align wi h he wo k o Co se i e al. (2012), who highligh ed he
impo ance o mili a y powe in main aining economic s abili y. Thei esea ch
sugges s ha a coun y’s mili a y s eng h plays a significan ole in os e ing a
a o able business en i onmen , he eby enhancing in es o confidence and com-
o in ope a ing wi hin he coun y. Simila ly, Gu dgie , Hen ichsen, and Mulhai
(2022) disco e ed ha announcemen s ega ding de ense budge s ha e a s a is ically
significan influence on he pe o mance o de ense company s ocks when US mili-
a y pa icipa ion in bo h di ec and indi ec o eign conflic s. Thus, ou findings
ein o ce he no ion ha mili a y powe is a key de e minan o economic s abili y
and in es o sen imen du ing conflic s.
Rega ding con ol a iables, ou analysis e eals ha Re u n on Asse s (ROA)
has a significan nega i e effec on ma ke eac ions be o e he announcemen o he
US-Hou hi conflic . This finding sugges s ha despi e high le els o p ofi abili y,
companies a e unable o mi iga e he conce ns associa ed wi h geopoli ical isk,
indica ing pe sis en in es o app ehension. This esul is consis en wi h Pessa ossi,
Th enon, and Weill (2020), who ound ha banks wi h high p ofi abili y do no
necessa ily expe ience educed financial dis ess du ing c ises. Mo eo e , Basne ,
Blomk is , and Gala io is (2022) a gue ha high p ofi abili y migh e en exace ba e
Table :Pea son’s co ela ion and a iance infla ion ac o .
Va iables MSI ROA DIV SIZE LEV LIQ Va iance infla ion
ac o (VIF)
NPI . .
ROA . . .
DIV . . . .
SIZE −. . .*** . .
LEV . . .*** .*** . .
LIQ −. . −. −.*** −. . .
NPI, he Na ion’s Powe Index o Pw Indx; ROA, ne income be o e axes o o al asse ; DIV, dummy a iable; o fi ms
ha pay di idends and o no pay; SIZE, loga i hm o o al asse ; LEV, o al liabili ies o al equi y; LIQ, o al cu en asse s
o o al asse . ***, **, and * a e significan a %, %, and %confidence le els, espec i ely. Sou ce: Au ho s’
calcula ion.
The Red Sea Conflic and Ma ke Reac ions 211
Table :C oss-sec ional eg ession analysis o cumula i e abno mal e u ns.
Va iables P e-e en days E en days Pos -e en days
(−,)(−,)(−,)(−,)(,+)(,+)(,+)(,+)
NPI −. −. −. −.** −.*** −.** −.** −.*
(−.)(−.)(−.)(−.)(−.)(−.)(−.)(−.)
ROA −. . −.** . −. −. −. −.
(−.)(.)(−.)(.)(−.)(−.)(−.)(−.)
LIQ .*** .*** .*** .*** . −. . .
(.)(.)(.)(.)(.)(−.)(.)(.)
LEV .** . .*−. −. −. −. −.
(.)(.)(.)(−.)(−.)(−.)(−.)(−.)
DIV −. −. −. . .** .** . .
(−.)(−.)(−.)(.)(.)(.)(.)(.)
SIZE −.*** −.** −.*−. −. . .*.*
(−.)(−.)(−.)(−.)(−.)(.)(.)(.)
Cons an .*. .*.** .*** .** .** .
(.)(.)(.)(.)(.)(.)(.)(.)
Coun y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Indus y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Rsqua e . . . . . . . .
Obs. , , , , , , , ,
NPI, he Na ion’s Powe Index o Pw Indx; ROA, ne income be o e axes o o al asse ; DIV, dummy a iable; o fi ms ha pay di idends and o no pay; SIZE, loga i hm o o al asse ;
LEV, o al liabili ies o al equi y; LIQ, o al cu en asse s o o al asse . ***, **, and * a e significan a %, %, and % confidence le els, espec i ely. Sou ce: Au ho s’calcula ion.
212 R. Yuda uddin e al.
nega i e sen imen ela ed o “human igh s”issues in conflic si ua ions, he eby
ailing o alle ia e geopoli ical isks. Con e sely, ou esul s show ha le e age has a
significan posi i e effec on ma ke eac ions be o e he announcemen . This sug-
ges s ha a high le e age a io, combined wi h expanded banking ope a ions, con-
ibu es o pe cei ed banking s abili y. This is suppo ed by Acos a-Smi h, G ill, and
Lang (2020) and Kiema and Joki uelle (2014), who no ed ha banks wi h a non- isk-
weigh ed le e age a io equi emen (LRR) end o adop low- isk lending s a egies
due o hei di e sified loan po olios.
Addi ionally, liquidi y demons a es a significan posi i e effec on ma ke
eac ions. Banks wi h subs an ial liquid asse s a e mo e likely o elici posi i e
ma ke esponses. This aligns wi h Musneh, Ka im, and A okiadasan Babu aw
(2021), who ound ha companies wi h high liquidi y benefi du ing ma ke down-
u ns, as hey can effec i ely design in es men s a egies and manage liquid asse s.
Rega ding di idends, we obse e a nega i e bu non-significan impac be o e he
announcemen , wi h a significan posi i e effec a e wa d. This indica es ha while
di idend dis ibu ion ini ially has minimal effec , i becomes an effec i e ool o
educing geopoli ical isk ollowing he announcemen . Hasan (2021) suppo s his by
highligh ing he c ucial ole o di idends in mi iga ing isk du ing c ises.
Finally, he a iable SIZE exhibi s diffe en impac s be o e and a e he
announcemen . P io o he announcemen , SIZE has a significan nega i e effec on
ma ke eac ions, sugges ing ha smalle companies a e mo e ulne able o
ex e nal shocks such as conflic s (Vu e al. 2023). In con as , a e he announcemen ,
SIZE shows a significan posi i e effec . This shi indica es ha la ge companies,
wi h hei ex ensi e in e na ional in eg a ion, a e be e posi ioned o handle dis-
u bances like geopoli ical isks and global unce ain ies, which aligns wi h Kamal,
Ahmed, and Hasan (2023) on he inc eased isk o in e na ional financial s abili y o
companies engaged in global ansac ions.
In he nex s age, we also analysis he impac o mili a y s eng h on ma ke
eac ions by ma ke (Table 8) and egion (Table 9). Ou analysis e eals ha he
Na ion Powe Index has a significan posi i e effec on ma ke eac ions in de eloped
ma ke s be o e and du ing he announcemen o he conflic . This sugges s ha
in es o s in de eloped coun ies pe cei e an inc ease in mili a y powe as a nega i e
signal, associa ing i wi h a highe isk o po en ial conflic . This eac ion can be
a ibu ed o heigh ened geopoli ical ensions, which ampli y ea s o an escala ing
conflic o p olonged ins abili y. A obus mili a y signal can sugges an inc eased
likelihood o u he hos ili ies, leading o g ea e unce ain y and isk in he
financial ma ke s. The po en ial o ex ended conflic s o en esul s in economic
sanc ions and ade dis up ions, which can ad e sely impac businesses and finan-
cial ins i u ions, u he exace ba ing in es o conce ns. In con as , in on ie
ma ke s, he NPI demons a es a significan nega i e effec on ma ke eac ions p io
The Red Sea Conflic and Ma ke Reac ions 213
Table :C oss-sec ional eg ession analysis o cumula i e abno mal e u ns by ma ke .
Va iables P e-e en days E en days Pos -e en days
(−,)(−,)(−,)(−,)(,+)(,+)(,+)(,+)
Panel A: De eloped ma ke s
NPI . .*.*.** .*−. −. .
(.)(.)(.)(.)(.)(−.)(−.)(.)
Cons an . . . −.** −.*** −. −. −.***
(.)(.)(.)(−.)(−.)(−.)(−.)(−.)
Coun y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Indus y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Rsqua e . . . . . . . .
Obs.
Panel B: Eme ging ma ke s
NPI . −. −. −. −. −.*** −. −.
(.)(−.)(−.)(−.)(−.)(−.)(−.)(−.)
Cons an . .*** .*.*. .*. .
(.)(.)(.)(.)(.)(.)(.)(.)
Coun y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Indus y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Rsqua e . . . . . . . .
Obs.
Panel C: F on ie ma ke s
NPI −.** −. −.** −.*** −. −. −. .
(−.)(−.)(
−.)(−.)(−.)(−.)(−.)(.)
Cons an .** .*.*. . .*** .** .*
(.)(.)(.)(.)(.)(.)(.)(.)
Coun y dummy Yes Yes Yes Yes Yes Yes Yes Yes
214 R. Yuda uddin e al.
Table :(con inued)
Va iables P e-e en days E en days Pos -e en days
(−,)(−,)(−,)(−,)(,+)(,+)(,+)(,+)
Indus y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Rsqua e . . . . . . . .
Obs.
NPI, he Na ion’s Powe Index o Pw Indx. ***, **, and * a e significan a %, %, and %confidence le els, espec i ely. Sou ce: Au ho s’calcula ion.
The Red Sea Conflic and Ma ke Reac ions 215
Table :C oss-sec ional eg ession analysis o cumula i e abno mal e u ns by egion.
Va iables P e-e en days E en days Pos -e en days
(−,)(−,)(−,)(−,)(,+)(,+)(,+)(,+)
Panel A: Ame icas
NPI −.*−. −. −.** −.*** −. −.*** −.
(−.)(−.)(−.)(−.)(−.)(−.)(−.)(−.)
Cons an . . . .** .*** . .*** .
(.)(.)(.)(.)(.)(.)(.)(.)
Coun y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Indus y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Rsqua e . . . . . . . .
Obs.
Panel B: Eu ope
NPI −. . −.** −.*. . −. −.
(−.)(.)(−.)(−.)(.)(.)(−.)(−.)
Cons an .*** .*** . . −. −.*** −.** −.**
(.)(.)(.)(.)(−.)(−.)(−.)(−.)
Coun y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Indus y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Rsqua e . . . . . . . .
Obs. , , , , , , , ,
Panel C: Middle Eas & A ica
NPI −. . −.*−.*** . . . .
(−.)(.)(−.)(−.)(.)(.)(.)(.)
Cons an . . .** .*** −. −. −. −.
(.)(.)(.)(.)(−.)(−.)(−.)(
−.)
Coun y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Indus y dummy Yes Yes Yes Yes Yes Yes Yes Yes
216 R. Yuda uddin e al.
Table A:C oss-sec ional eg ession analysis o cumula i e abno mal e u ns wi h Winso iza ion (a le el %).
Va iables P e-e en days E en days Pos -e en days
(−,)(−,)(−,)(−,)(,+)(,+)(,+)(,+)
NPI −. −. −. −.** −.*** −.*** −.*** −.**
(−.)(−.)(−.)(−.)(−.)(−.)(−.)(−.)
ROA . −. −.** −. . . .** .***
(.)(−.)(−.)(−.)(.)(.)(.)(.)
LIQ . . . . −. −. . .
(.)(.)(.)(.)(−.)(−.)(.)(.)
LEV . −. . −. −.** −. −.*−.*
(.)(−.)(.)(−.)(−.)(−.)(−.)(−.)
DIV −.** −.*−.** . .** .*** .** .*
(−.)(−.)(−.)(.)(.)(.)(.)(.)
SIZE −.*** −.*−. −. −. . .*** .***
(−.)(−.)(−.)(−.)(−.)(.)(.)(.)
Cons an .*. . .** .*** .** .** .
(.)(.)(.)(.)(
.)(.)(.)(.)
Coun y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Indus y dummy Yes Yes Yes Yes Yes Yes Yes Yes
Rsqua e . . . . . . . .
Obs. , , , , , , , ,
No es: NPI, he Na ion’s Powe Index o Pw Indx; ROA, ne income be o e axes o o al asse ; DIV, dummy a iable; o fi ms ha pay di idends and o no pay; SIZE, loga i hm o o al
asse ; LEV, o al liabili ies o al equi y; LIQ, o al cu en asse s o o al asse . ***, **, and * a e significan a %, %, and % confidence le els, espec i ely. Sou ce: Au ho s’calcula ion.
The Red Sea Conflic and Ma ke Reac ions 223
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