Indonesian Capital Market Reaction to Geopolitical Risk: An Event Study of the Iran–United States–Israel Conflict and its Impact on the Indonesia Composite Index (IHSG)

Abstract

The Iran–United States–Israel conflict in 2026 created global geopolitical uncertainty that potentially affected financial markets, including the Indonesian capital market. This study aims to analyze market reactions as proxied by abnormal returns before and after the conflict event. A quantitative approach was employed using an event study method, with paired sample t-test and one sample t-test applied to the Indeks Harga Saham Gabungan data over a period of 5 days before and 5 days after the event. The results indicate that there is no significant difference in abnormal returns before and after the event, and no significant abnormal return around the event date. These findings suggest that the geopolitical conflict did not contain sufficient information to influence investor reactions in the Indonesian capital market. The implications indicate that investors tend not to respond significantly to global geopolitical events that do not directly affect domestic economic conditions, highlighting that fundamental and internal factors play a more dominant role in investment decision-making.