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

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.