This study aims to test whether U.S. defence fiscal spending and geopolitical escalation have been financialised through speculative price exuberance in major U.S. defence contractors' equity, and to assess whether episodes of stock exuberance align with periods of heightened defence spending and geopolitical tension.
The study applied the Generalised Supremum Augmented Dickey–Fuller (GSADF) test to monthly stock-price series for five major U.S. defence contractors, Lockheed Martin, Raytheon, Boeing, General Dynamics and Northrop, using data from 1970 to 01 to 2025–07. Identified and dated multiple exuberance episodes and compared their timing with records of major fiscal defence outlays, geopolitical tensions and military events.
The findings reveal the detection of multiple distinct episodes of price exuberance across all five firms. Many exuberant episodes significantly coincided with periods of major U.S. defence fiscal spending, rising geopolitical tensions and notable military events. This evidence of synchronisation suggests that defence contractor valuations may have periodically exhibited speculative dynamics during phases of elevated defence spending and geopolitical tension. However, additional evidence also indicates that defence spending is more strongly associated with bubble activity than geopolitical risk itself.
The study provides a long-span, firm-level empirical test of the financialisation of defence by combining GSADF bubble detection with a multi-decadal dataset through mid-2025 across five leading contractors. The study links dated exuberance episodes to fiscal and geopolitical events and offers a novel policy implication: financial regulators should incorporate defence-spending dynamics and geopolitical expectations into market surveillance.
