When bad news is good news: Geopolitical risk and the cross-section of emerging market stock returns

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dc.authorid0000-0003-4034-269X
dc.contributor.authorZaremba, Adam
dc.contributor.authorCakici, Nusret
dc.contributor.authorDemir, Ender
dc.contributor.authorLong, Huaigang
dc.date.accessioned2025-05-10T19:50:18Z
dc.date.issued2022
dc.departmentİstanbul Medeniyet Üniversitesi
dc.description.abstractUsing a news-based gauge of geopolitical risk, we study its role in asset pricing in global emerging markets. We find that changes in risk positively predict future stock returns. The countries with the highest increase in geopolitical uncertainty outperform their counterparts with the lowest change by up to 1% per month. The anomaly is not explained by other established asset pricing effects and remains robust to many considerations. We link the observed phenomenon with investor overreaction to geopolitical news driven by the availability bias.
dc.description.sponsorshipNational Science Center of Poland [2016/23/B/HS4/00731]
dc.description.sponsorshipWe thank Nikolaos Apergis, Elie Bouri, Debojyoti Das, Rangan Gupta, Axel Hedstrom, Vanja Piljak, Lee Smales, Soo Keong Yong, and Mark Wohar for helpful comments, as well as seminar participants at the Poznan University of Economics and Business. We also thank the discussants and participants of the 4th International Conference on Business and Law in Dubai, the 34th EBES Conference in Athens, and the 37th International Conference of the French Finance Association in Nantes. All errors remain our own. Adam Zaremba acknowledges the financial support of the National Science Center of Poland [grant no. 2016/23/B/HS4/00731]. Adam Zaremba is also a member of the research center Montpellier Research in Management (MRM; EA 4557, Univ. Montpellier). The authors have no conflicts of interest to disclose.
dc.identifier.doi10.1016/j.jfs.2021.100964
dc.identifier.issn1572-3089
dc.identifier.issn1878-0962
dc.identifier.scopus2-s2.0-85121491320
dc.identifier.scopusqualityQ1
dc.identifier.urihttps://doi.org/10.1016/j.jfs.2021.100964
dc.identifier.urihttps://hdl.handle.net/20.500.14730/12294
dc.identifier.volume58
dc.identifier.wosWOS:000789151800003
dc.identifier.wosqualityQ1
dc.indekslendigikaynakWeb of Science
dc.indekslendigikaynakScopus
dc.language.isoen
dc.publisherElsevier Science Inc
dc.relation.ispartofJournal of Financial Stability
dc.relation.publicationcategoryMakale - Uluslararası Hakemli Dergi - Kurum Öğretim Elemanı
dc.rightsinfo:eu-repo/semantics/closedAccess
dc.snmzKA_WOS_20250302
dc.subjectGeopolitical Risk Index
dc.subjectThe cross-section of stock returns
dc.subjectEmerging markets
dc.subjectEquity anomalies
dc.subjectAsset pricing
dc.subjectReturn predictability
dc.subjectOverreaction
dc.subjectAvailability heuristic
dc.subjectSalience
dc.titleWhen bad news is good news: Geopolitical risk and the cross-section of emerging market stock returns
dc.typeArticle

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