Global risks, the macroeconomy, and asset prices

Michele Costola (), Michael Donadelli, Luca Gerotto () and Ivan Gufler ()
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Michele Costola: Ca’ Foscari University of Venice
Luca Gerotto: Ca’ Foscari University of Venice
Ivan Gufler: LUISS Guido Carli

Empirical Economics, 2022, vol. 63, issue 5, No 2, 2357-2388

Abstract: Abstract We propose a novel index of global risks awareness (GRAI) based on the most concerning risks—classified in five categories (economic, environmental, geopolitical, societal, and technological)—reported by the World Economic Forum (WEF) according to the potential impact and likelihood occurrence. The degree of public concern toward these risks is captured by Google search volumes on topics having the same or similar wording of that one of the WEF Global Risk Report. The dynamics of our GRAI exhibits several spillover episodes and indicates that concerns on the five different categories of global risks are—on average—highly interconnected. We further examine the interconnection between global risks perceptions and the macroeconomy and find that concerns on economic-, geopolitical-, and societal-related risks are net shock transmitters, whereas the macroeconomic variables are largely net receivers. Finally, we perform standard cross-sectional asset pricing tests and provide evidence that rising interconnection among global risks awareness commands a positive and statistically significant risk premium.

Keywords: Global risks; Uncertainty; Google searches; Macrodynamics; Asset prices (search for similar items in EconPapers)
JEL-codes: C32 D80 E32 G12 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s00181-022-02205-9

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