This study investigates the relationship between geopolitical risk (GPR) and currency excess returns. A zero-cost strategy that buys higher GPR currencies and sells lower GPR currencies generates a significant excess return of 5.72% per year. These returns contain information that goes beyond traditional currency investment strategies and cannot be explained by existing risk factors in asset pricing tests. Furthermore, the GPR factor is positively priced in broad cross sections of currency portfolios and in individual currencies. Further investigation reveals that the observed return predictability of GPR for currency returns stems from the country-specific idiosyncratic risk component and the regional risk component.

中文翻译：

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地缘政治风险和货币回报

本研究调查地缘政治风险（GPR）与货币超额收益之间的关系。买入较高的 GPR 货币并卖出较低的 GPR 货币的零成本策略每年可产生 5.72% 的显着超额回报。这些回报包含超出传统货币投资策略的信息，无法用资产定价测试中现有的风险因素来解释。此外，GPR 因子在货币投资组合的广泛横截面和个别货币中均被积极定价。进一步的调查表明，观察到的 GPR 对货币回报的回报可预测性源于特定国家的特殊风险成分和区域风险成分。