War-Related News Risk and the Cross Section of Swedish Capital Market Returns

Sammanfattning

We test whether war-related news risk is priced in the cross section of Swedish capital market returns. Using a Boolean keyword search across six major Swedish newspapers, WarFac is constructed as the AR(1) innovation in the share of war-related articles over 1993-2024. The factor carries a significant negative risk premium across all factor controls. The premium is concentrated in geopolitical tail events and reversal dynamics are explained through rational and behavioral interpretations. Extending the analysis to fixed income, periods of elevated war news steepen rather than flatten the Swedish yield curve, inconsistent with a flight-to-safety channel. Together, these findings establish that war risk pricing extends beyond U.S. markets, and that a local-language keyword search constitutes a valid and replicable proxy for geopolitical risk.