Geopolitical Risks and the Predictability of Green Investments: A <scp>GARCH</scp>‐Based Mixed Data Sampling Approach

ABSTRACT The frequent occurrences of geopolitical tensions, wars and conflicts continue to place a great limitation on the development of green projects, thereby reducing the incentives for sustainable investments. While there have been several attempts to connect geopolitical risks with financial market performance, there are still several limitations that this study intends to address. Among others, we make a comparison between the predictive impacts of global and country‐specific geopolitical risks on the volatility of green investment assets, putting threats and actual acts into perspective. Using the GARCH‐MIDAS methodology, we find that global geopolitical risks increase the volatility of most of the green investment assets, with the highest impact attributed to geopolitical risk threats. The country‐specific analysis shows more heterogeneous impacts, although a positive relationship is found in most cases. In Europe, the geopolitical risks of the Netherlands and the United Kingdom exert the strongest impacts on the volatility of green investments, whereas in the non‐European countries, the geopolitical risks of Russia and the United States have the strongest influence. Comparing regional impacts, the geopolitical risks of the non‐European countries have a stronger impact than those of the European countries.