Political Uncertainty and Firm-Level Stock Market Reactions in the United States

Authors

• Nozomi TanakaFollow

First Advisor

Ross Miller, department of political science

Second Advisor

Elina Ibrayeva, college of business

Date of this Version

Spring 2027

Document Type

Thesis

Citation

Tanaka, Nozomi. Political Uncertainty and Firm-Level Stock Market Reactions in the United States. Undergraduate Honors Thesis. University of Nebraska-Lincoln. March 2026.

Comments

Copyright Nozomi Tanaka 2026

Abstract

Political uncertainty has become an increasingly important feature of the global economy, with major geopolitical events often triggering rapid reactions in financial markets. This study examines how geopolitical shocks affect firm-level stock market performance in the United States. Using an event study framework, the analysis evaluates cumulative returns and stock return volatility for fourteen publicly traded firms across nine major geopolitical events between 2016 and 2022, including the Brexit referendum, the U.S.–China trade war, the COVID-19 pandemic, and the Russia–Ukraine war.

The results indicate that most firms experienced negative abnormal returns around geopolitical events, suggesting that political uncertainty is generally perceived by investors as a negative shock to firm valuation. Technology, manufacturing, and consumer-oriented firms such as Apple, Tesla, General Electric, Nike, and Microsoft display consistently negative average cumulative returns across the sample. The COVID-19 pandemic produced the largest negative cumulative returns, affecting nearly all firms in the sample.

At the same time, stock return volatility increased across all firms during the event windows, indicating heightened market uncertainty surrounding geopolitical shocks. Firms such as Tesla, Matson, and First Solar exhibit particularly high volatility, suggesting stronger investor reactions to political developments. In contrast, energy and shipping firms, including Chevron and Matson, occasionally experience positive cumulative returns during certain conflict-related events, highlighting sectoral differences in exposure to geopolitical risk.

Overall, the findings suggest that geopolitical uncertainty is associated with both negative valuation effects and increased market instability, while industry characteristics influence the magnitude and direction of firm-level market reactions.

These findings contribute to the literature on geopolitical risk by providing firm-level evidence on how political uncertainty influences stock market behavior.