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

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  • Chen, Ran
  • Yang, Lu
  • Zhang, Xueyong

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.

Suggested Citation

  • Chen, Ran & Yang, Lu & Zhang, Xueyong, 2026. "Geopolitical risk and the cross-section of stock returns: International evidence," Journal of International Money and Finance, Elsevier, vol. 162(C).
    • Handle: RePEc:eee:jimfin:v:162:y:2026:i:c:s0261560626000112
    DOI: 10.1016/j.jimonfin.2026.103526

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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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