This paper analyses the impact of geopolitical risks and economic policy uncertainty on stock returns. It uses an unbalanced panel dataset of monthly observations for 22 countries for the period 1985–2020. It controls for a set of macroeconomic and market structure variables while also taking into consideration the potential effects of the 2007–2009 financial crisis. This paper shows that the impact of geopolitical risks is negative and statistically significant. The economic interpretation of our main results is that a one-unit standard deviation increase in geopolitical risks decreases stock returns by 10.53–42.14% of its sample mean. For comparison, this paper uses alternatively the global economic policy uncertainty index and the economic policy uncertainty country index, and also finds a statistically significant negative relationship although it is weaker in the latter case.

This paper focuses on the sovereign crisis of the Euro debt crisis era, and we address the existence of the relationship of CDS and bond markets sovereign credit risk pricing for selected core and periphery EMU countries, during and after the 2009 EMU crisis. We study this relationship in conjunction to geopolitical risk as a measure of macroeconomic uncertainty. We use daily observations for several bond maturities and CDS premium with reference to the core (France and Germany) versus periphery EMU countries (Portugal, Italy, Ireland Spain, and Greece) for the period 2009 to 2014. To measure global geopolitical risk, we employ the Caldara and Iacoviello (2022) global geopolitics index (GPR). Using alternative econometric approaches, we find adequate evidence of volatility spillovers between the geopolitical risk index and sovereign risk markets mainly during the crisis period (2009–2012) and weaker during the easing of the eurozone debt crisis period (2012–2014). Moreover, based on Granger causality the estimation of the short‐ term dynamics reveals a significant linkage during the post‐crisis period rather than during crisis. During the crisis period, we found significant dynamic responses between GPR and bond yields.