Geopolitical uncertainty and firm tail risk: Evidence from energy-focused economies

Ngan Duong Cao, Vu Quang Trinh and Tam Duc Nguyen

Energy Economics, 2025, vol. 150, issue C

Abstract: This study investigates the relationship between national geopolitical risk (GPR) and firm-level tail risks, including total tail risk, systematic tail risk, and idiosyncratic tail risk, using a comprehensive global dataset comprising 19,823 firms across 14 countries from 1990 to 2019. The sample includes energy-focused economies, where geopolitical tensions often intersect with national energy strategies and global resource dependencies. The findings indicate that geopolitical risk significantly increases total and idiosyncratic tail risks while reducing systematic tail risk, suggesting a redistribution of risk exposure under geopolitical uncertainty. Moreover, subsample analysis reveals that the observed effects are primarily driven by non-energy sector firms and oil-importers. Despite their inherent exposure to geopolitical risks, energy firms exhibit resilience, likely due to advanced risk management practices, government interventions, and the counterbalancing effects of energy price fluctuations. These findings have important implications for policymakers and market participants, aiding in the development of strategies to better manage firm-specific tail risks in response to rising cross-country political instability.

Keywords: Geopolitical risk; Energy-focused countries; Tail risk; Systematic tail risk; Idiosyncratic tail risk (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:150:y:2025:i:c:s0140988325006711

DOI: 10.1016/j.eneco.2025.108844

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