Multi-Scale Analysis of Geopolitical Risk and Its Transmission Mechanisms to the Iranian Capital Market: A Wavelet Approach and the Role of Intermediary Markets
Quarterly Journal of Securities Exchange

Quarterly Journal of Securities Exchange

Multi-Scale Analysis of Geopolitical Risk and Its Transmission Mechanisms to the Iranian Capital Market: A Wavelet Approach and the Role of Intermediary Markets

Document Type : Original Article

Author
Assistant Professor, Department of Management, Faculty of Management, Economics and Accounting, Payame Noor University, Tehran, Iran
Abstract
This study investigates the multi-scale transmission of geopolitical risk (GPR) to Iran’s capital market, emphasizing mediating roles of exchange rate, gold coin, oil, inflation, housing, and sukuk markets. Using daily data (2016–2025) and a correlation design, the research tracks the Tehran Stock Exchange Price Index (TEPIX) alongside intermediary variables. A tailored Iran-specific GPR index was developed via text mining of Iran-related GDELT news.
Wavelet transforms decomposed variables into five time scales. Scale-specific mediation analysis shows time-varying transmission patterns: over short-term scales (2–4 months), GPR initially lifts stock returns, but effects reverse quickly through strong negative impacts from exchange rate, gold coin, and inflation. In medium scales (4–16 months), the net effect turns negative, driven by inflation, housing, and sukuk channels. In the long term (beyond 32 months), persistent exchange rate depreciation and structural inflation partially offset earlier losses, pushing net impacts toward positive. Inflation emerged as the most consistent mediator across scales.
All results were robust to alternative specifications, structural breaks, and nonlinearity tests. By introducing a customized GPR index and a wavelet-based multi-scale mediation framework, this study offers novel insights into risk transmission in a sanctions-affected emerging economy and provides actionable policy guidance for short-, medium-, and long-term stabilization.
Keywords
Subjects

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