Uncertainty and cross-sectional stock returns: Evidence from China

Bruno Deschamps, Tianlun Fei, Ying Jiang and Xiaoquan Liu

Journal of Banking & Finance, 2025, vol. 171, issue C

Abstract: We study the impact of macroeconomic and financial uncertainties on cross-sectional returns in the Chinese stock market. We find that stocks with a lower macroeconomic uncertainty beta generate higher excess returns, implying that macroeconomic uncertainty commands a negative risk premium. Meanwhile, the exposure to financial uncertainty is not priced in stock returns. Unlike financial uncertainty, macroeconomic uncertainty is a state variable that predicts a deterioration in economic activity, suggesting that investors require a premium for holding stocks that correlate negatively with it.

Keywords: Macroeconomic uncertainty; Asset pricing; Risk factors; Return decomposition (search for similar items in EconPapers)
JEL-codes: C13 E20 E30 G11 G12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:171:y:2025:i:c:s0378426624002887

DOI: 10.1016/j.jbankfin.2024.107374

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