This study investigates the relationship between geopolitical risk (GPR) and currency excess returns. A zero-cost strategy that buys higher GPR currencies and sells lower GPR currencies generates a significant excess return of 5.72% per year. These returns contain information that goes beyond traditional currency investment strategies and cannot be explained by existing risk factors in asset pricing tests. Furthermore, the GPR factor is positively priced in broad cross sections of currency portfolios and in individual currencies. Further investigation reveals that the observed return predictability of GPR for currency returns stems from the country-specific idiosyncratic risk component and the regional risk component.

This study analyzes the impact of commercial bank affiliation on mutual funds' timing ability. In contrast to the findings for developed markets, affiliated funds outperform unaffiliated funds in China. Here, we explain affiliated funds' outperformance using 3,351 Chinese equity and hybrid mutual funds between 2008 and 2019 to demonstrate that affiliated funds are better timed than unaffiliated funds. One underlying mechanism is that affiliated funds benefit from information advantages due to the unique position of commercial banks in China's economy. Further findings reveal that better timing ability subsequently benefits commercial banking groups, indicating that commercial banks and affiliated funds share a mutual incentive compatibility relationship. A quasi-natural experiment of variations in bank affiliation verifies a causal interpretation of these findings, and our results continue to hold across a set of robustness tests.