Geopolitical risk and household stock market participation

Abstract

I find that the index of geopolitical risk (GPR) is significantly associated with both the extensive and intensive margins of stock market participation decisions. The GPR index subsumes the significance of economic policy uncertainty for stock market participation decisions and has long-lasting effects for up to 12 months. I further investigate the economic channel through which the GPR index is associated with stock market participation. Empirical evidence suggests that it is a link between the GPR index and financial uncertainty that drives the results. However, I do not find evidence supporting the income uncertainty channel.