Matteo Crosignani, Lina Han, and Marco Macchiavelli

Geoeconomic risk—the risk that firms incur valuation losses when countries deploy economic, trade, or financial leverage for geopolitical aims—has become a first-order concern for investors. In this post, based on our recent Staff Report, we document that domestic U.S. stocks expose investors to substantial geoeconomic risk through firms’ global supply-chain relationships, affecting investors’ returns and portfolio allocation. We also find that investors are compensated for bearing geoeconomic risk through higher risk premia.