Geopolitical risk and the cross-section of stock returns: International evidence

Ran Chen, Lu Yang and Xueyong Zhang

Journal of International Money and Finance, 2026, vol. 162, issue C

Abstract: This study investigates the relationship between geopolitical risk (GPR) and the cross-section of stock returns in an international setting. We find that individual stocks’ exposures to local GPR are negatively related to their expected returns. This effect is more pronounced for firms in developed markets than those in emerging markets, and for firms in high-risk markets than those in low-risk markets. We also document that the pricing of local GPR varies across countries according to stock market development and information transparency. In addition, we demonstrate that global GPR is a significant pricing factor across international stock markets. These findings indicate that investors demand extra compensation in the form of higher expected returns to hold stocks with negative GPR betas and are willing to accept lower expected returns for “safe assets” that have positive betas.

Keywords: Geopolitical risk; Cross-section of stock returns; International stock markets (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:162:y:2026:i:c:s0261560626000112

DOI: 10.1016/j.jimonfin.2026.103526

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