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Geopolitical risk and excess stock returns predictability: New evidence from a century of data

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  • Ma, Feng
  • Lu, Fei
  • Tao, Ying

Abstract

This study applies a new series of geopolitical risk historical indices developed by Caldara and Iacoviello (2022) to predict stock returns. Empirical results show that the geopolitical threats index (GPRHT) can help in predicting stock returns, especially during expansion. Combined the geopolitical indices and 14 famous macroeconomic variables can yield good out-of-sample performances from statistical and economic viewpoints. Our research provides fresh perspectives on stock return predictability in light of geopolitical risks.

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  • Ma, Feng & Lu, Fei & Tao, Ying, 2022. "Geopolitical risk and excess stock returns predictability: New evidence from a century of data," Finance Research Letters, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004160
    DOI: 10.1016/j.frl.2022.103211
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    Cited by:

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    3. Sheenan, Lisa, 2023. "Green bonds, conventional bonds and geopolitical risk," Finance Research Letters, Elsevier, vol. 58(PC).
    4. Hossain, Ashrafee T. & Masum, Abdullah-Al & Saadi, Samir, 2024. "The impact of geopolitical risks on foreign exchange markets: Evidence from the Russia–Ukraine war," Finance Research Letters, Elsevier, vol. 59(C).
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    9. Zhang, Yaojie & Zhang, Yuxuan & Ren, Xinrui & Jin, Meichen, 2024. "Geopolitical risk exposure and stock returns: Evidence from China," Finance Research Letters, Elsevier, vol. 64(C).
    10. Jana, Rabin K. & Ghosh, Indranil, 2023. "Time-varying relationship between geopolitical uncertainty and agricultural investment," Finance Research Letters, Elsevier, vol. 52(C).
    11. Niu, Zibo & Wang, Chenlu & Zhang, Hongwei, 2023. "Forecasting stock market volatility with various geopolitical risks categories: New evidence from machine learning models," International Review of Financial Analysis, Elsevier, vol. 89(C).
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