How do rising geopolitical tensions influence foreign equity investments by US institutional investors?

Abstract

This paper investigates how geopolitical risk and international political disagreements influence foreign equity investment decisions by US institutional investors. We find empirical evidence that rising geopolitical tensions adversely affect foreign equity investments and indirectly influence these investments based on the type of global supply chain participation between the destination countries and the US. Our comparative analysis reveals a heterogeneous impact of rising geopolitical tensions, with emerging markets experiencing sharper declines in foreign investments compared to advanced markets.