Geopolitical storm approaches: can defence stocks serve as a safe haven?

In the context of an increasingly complex and volatile global geopolitical landscape, the critical role of the defence sector in ensuring strategic security has become more evident, leading to abundant market opportunities. This study adopts a wavelet-based quantile-to-quantile approach in analysing the influence of geopolitical risk (GPR) on the defence stock market (DEF). The findings indicate that, in the short term, geopolitical risk compels investors to treat defence stocks as safe-haven assets. In the medium and long term, even in the face of a dominant positive influence, geopolitical tensions have the potential to instigate panic in the market, resulting in adverse effects. The conclusions drawn in this research provide a basis for more sophisticated risk management strategies for investors amidst geopolitical tensions and serve as solid evidence for politicians’ decision-making.