Impact of Geopolitical Risk Perception (Iran–USA–Israel Conflict) on Investment Intention: Mediation by Loss Aversion and Moderation by Nationalistic Sentiment

Abstract

The study focuses on the effects of the perception of the geopolitical risk in the event of the Iran-USA-Israel dispute on the intention of individual investors, in the surroundings of the Pakistan Stock Exchange (PSX), the mediating variable being the level of loss aversion and nationalistic sentiment being the moderating variable. Out of the behavioral finance theory and prospect theory (Kahneman and Tversky, 1979), our hypothesis is that the impressions of a higher geopolitical risk will reduce investment intention, as a part of which can be accounted by loss aversion. Besides, the nationalistic sentiment serves as a mediating factor to the relationship that exaggerates or cushions the perception of risk on investment decisions. The proposed study will involve a partial least squares structural equation modelling (PLS-SEM) with the aid of Smart Pls 4 to test the stated hypotheses, as well as primary data (750 combined responses of 312 individual investors in Karachi in the period between March 2026 and April 2026). The results indicate the negative direct impact of the perception of geopolitical risk on investment intention ( = -0.431, ). The indirect 38.7-percent effect (2 = -0.272, p < 0.001) is one of the intermediaries of this relationship. It is mediated by the nationalistic sentiment (= 0.163, p =, 0.01) in the following manner: between investors who strongly agree with the view that concerns the Pakistan neutrality, there is no as sharp negative influence of perceiving geopolitical risk on the intention to invest in Pakistan. The intention to invest estimate under the model has a fluctuation of 52.4 percent (R 2 = 0.524). The study would contribute to the growing literature on behavioral finance in emerging marketplaces and would have practical implication to the policy makers in the Securities and Exchange Commission of Pakistan (SECP), which undertakes the financial advisory service providers as well as investors who are exposed to crises created by geopolitical factors.