Gala et al develop global political risk factor for financial markets

10 articles · Updated · Bruegel · Apr 28

The new global political risk factor (GP) explains over 50% of political risk variability across 42 developed and emerging markets and delivers a 4.44% annual return.
GP significantly improves asset-pricing models, showing that political risk is systematic and cannot be diversified away across countries or asset classes, impacting equities, bonds, and currencies.
Policymakers and investors are urged to incorporate multiple political risk ratings for robust risk management, as rising political risk raises sovereign borrowing costs and reflects growing global geopolitical fragmentation.

Is the market's pricing of political risk making global politics more unstable?

How can investors protect their wealth as political risk makes diversification obsolete?

How can governments manage soaring debt when political risk keeps raising borrowing costs?

Can new AI tools truly predict the next geopolitical shock for financial markets?

What major investment opportunities are emerging from the new era of geopolitical competition?

Can central banks still protect economies now that their decisions are seen as political?