Using standard predictors in the forecasting literature, we forecast the U.S. stock market returns conditional on geopolitical risk and business cycles over the 1927–2021 period. We find that out-of-sample forecasting performance is significantly better in times of high geopolitical risk versus low geopolitical risk. Consistent with previous research, we find further evidence of improved return predictability in recessions. However, we find little difference in forecasting performance in recessions versus expansions once the level of geopolitical risk is controlled for. We find similar results when using stock market cycles and periods of positive/negative industrial production growth in place of recessions/expansions. Our study contributes to the forecasting literature by documenting that geopolitical risk by itself and in combination with business cycle indicators impacts the forecasting ability of standard forecasting variables in the literature. We also contribute to the literature on the adaptive markets hypothesis with evidence of time-varying return predictability. We find inconclusive evidence as to whether our results are based on time-varying predictability or time-varying risk.

中文翻译：

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以地缘政治风险和商业周期为条件预测美国股票回报


使用预测文献中的标准预测器，我们预测了 1927-2021 年期间以地缘政治风险和商业周期为条件的美国股市回报。我们发现，在高地缘政治风险时期，样本外预测性能明显优于低地缘政治风险时期。与之前的研究一致，我们发现进一步证据表明，在经济衰退中，回报的可预测性有所提高。然而，我们发现，在地缘政治风险水平得到控制后，预测衰退与扩张的表现几乎没有差异。当使用股票市场周期和正/负工业生产增长时期代替衰退/扩张时，我们发现了类似的结果。我们的研究通过记录地缘政治风险本身并与商业周期指标相结合会影响文献中标准预测变量的预测能力，为预测文献做出了贡献。我们还为有关适应性市场假说的文献做出了贡献，并提供了时变回报可预测性的证据。我们发现没有确凿的证据证明我们的结果是基于时变可预测性还是时变风险。