Recent Developments in Financial Risk and the Real Economy

Ian Dew-Becker () and Stefano Giglio
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Ian Dew-Becker: National Bureau of Economic Research, Cambridge, Massachusetts, USA
Stefano Giglio: National Bureau of Economic Research, Cambridge, Massachusetts, USA

Annual Review of Financial Economics, 2024, vol. 16, issue 1, 39-60

Abstract: In this article, we review recent developments in macroeconomics and finance on the relationship between financial risk and the real economy. We focus on three specific topics: (a) the term structure of uncertainty, (b) time variation--specifically, the long-term decline--in the variance risk premium, and (c) time variation in conditional skewness. We also introduce two new data series: implied volatility from one-day options on grains for the period 1906--1936 and prices of cliquet options, which provide insurance against single-day crashes on the S&P 500. Both series give some context to the recent rise in trade in extremely short-dated options. Finally, we discuss new avenues for future research.

Keywords: real economy; implied volatility; grains; term structure; options; skewness; cliquets; uncertainty; variance risk premium; business cycle (search for similar items in EconPapers)
JEL-codes: D81 E23 E24 E32 G12 G13 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1146/annurev-financial-082123-105456

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