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

Jianlei Yang and Chunpeng Yang

Economic Analysis and Policy, 2021, vol. 72, issue C, 226-240

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.

Keywords: Geopolitical risk; Mixed-frequency GPR; Stock market returns; Stock return forecast; MIDAS regression model (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:72:y:2021:i:c:p:226-240

DOI: 10.1016/j.eap.2021.08.008

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