“ANALYSIS OF IMPACT OF GEOPOLITICAL EVENTS ON THE INDIVIDUAL INVESTMENT STRATEGY”

Abstract: Geopolitical events such as wars, trade conflicts, and diplomatic tensions have become major sources of uncertainty in global financial markets. These shocks influence macro-financial conditions and individual investment behaviour. The development of a Geopolitical Risk (GPR) index by Caldara & Iacoviello (2022) has enabled a systematic measurement of geopolitical uncertainty and its effect on risk pricing. Rising GPR has been shown to increase market volatility, reduce returns, and negatively affect investor confidence, especially in emerging economies (Salisu et al., 2022; Zhang et al., 2023). With the growing participation of retail investors and digital access to financial markets, it is crucial to understand how individuals respond to geopolitical shocks. Recent studies indicate that heightened GPR alters household participation choices, asset allocation, and hedging behaviours, often driving investors toward safe havens such as cash and gold or toward conflict-related sectors like defense equities (Agarwal et al., 2022; Cai et al., 2024; Klein, 2024; Lee, 2023). Additionally, geopolitical anxiety amplifies sentiment-driven responses and encourages herding behaviour, which may weaken rational investment decision-making (Guo & Shi, 2024; Medhioub, 2025). Despite growing evidence, research remains limited regarding long-term household wealth effects and how investor traits such as financial literacy or digital trading exposure mediate behavioural changes. This study seeks to address these gaps and contribute to a deeper understanding of how geopolitical risk shapes individual investment strategy.

Keywords: Geopolitical Risk, Investors, Market Volatility, Portfolio Choice, Safe-Haven Assets, Behavioural Finance