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The impact of mixed-frequency geopolitical risk on stock market returns

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  • Yang, Jianlei
  • Yang, Chunpeng

Abstract

To timely track and evaluate the impact of dynamic geopolitical risk (GPR) shocks, we use mixed-frequency GPR to explain and forecast stock market returns. Our empirical findings confirm that the real-time GPR shock has a lasting negative impact on stock returns. Moreover, the overall model fits, and the reliability of forecasts is sensitive to the selected sample frequency. We show that the mixed-frequency GPR estimates can be considered more significant and robust than those from an analogous common-frequency approach. The out-of-sample return forecasting tests further suggest that the prediction models incorporating mixed-frequency GPR provide substantial and statistically significant improvements in stock return forecast accuracy.

Suggested Citation

  • Yang, Jianlei & Yang, Chunpeng, 2021. "The impact of mixed-frequency geopolitical risk on stock market returns," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 226-240.
    • Handle: RePEc:eee:ecanpo:v:72:y:2021:i:c:p:226-240
    DOI: 10.1016/j.eap.2021.08.008
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    Keywords

    Geopolitical risk; Mixed-frequency GPR; Stock market returns; Stock return forecast; MIDAS regression model;
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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