Economics at your fingertips  

Business-cycle variation in macroeconomic uncertainty and the cross-section of expected returns: Evidence for scale-dependent risks

Georgios Xyngis ()

Journal of Empirical Finance, 2017, vol. 44, issue C, 43-65

Abstract: A single factor that captures assets’ exposure to business-cycle variation in macroeconomic uncertainty can explain the level and cross-sectional differences of asset returns. Specifically, based on portfolio-level tests I demonstrate that fluctuations in uncertainty with persistence ranging from 32 to 128 months carry a negative price of risk of about −2% annually. The price of risk for fluctuations with persistence outside of this range and for the raw series of aggregate uncertainty is insignificant. Also, equity exposures are negative and hence the corresponding risk premia are positive. I quantify macroeconomic uncertainty using the model-free index of Jurado et al. (2015) derived from monthly, quarterly and annual forecasts.

Keywords: Macroeconomic uncertainty; Scale-dependent risks; Scale-specific predictability; Monotonicity of factor loadings (search for similar items in EconPapers)
JEL-codes: E32 E44 G12 C22 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-03-31
Handle: RePEc:eee:empfin:v:44:y:2017:i:c:p:43-65