EconPapers    
Economics at your fingertips  
 

Is economic uncertainty priced in the cross-section of stock returns?

Turan G. Bali, Stephen Brown () and Yi Tang

Journal of Financial Economics, 2017, vol. 126, issue 3, 471-489

Abstract: We investigate the role of economic uncertainty in the cross-sectional pricing of individual stocks and equity portfolios. We estimate stock exposure to an economic uncertainty index and show that stocks in the lowest uncertainty beta decile generate 6% more annualized risk-adjusted return compared to stocks in the highest uncertainty beta decile. We find that the uncertainty premium is driven by the outperformance (underperformance) by stocks with negative (positive) uncertainty beta. Our results indicate that uncertainty-averse investors demand extra compensation to hold stocks with negative uncertainty beta and they are willing to pay high prices for stocks with positive uncertainty beta.

Keywords: Economic uncertainty; Uncertainty aversion; Cross-section of stock returns; ICAPM; Return predictability (search for similar items in EconPapers)
JEL-codes: G11 G12 C13 E20 E30 (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)
http://www.sciencedirect.com/science/article/pii/S0304405X17302374
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: https://EconPapers.repec.org/RePEc:eee:jfinec:v:126:y:2017:i:3:p:471-489

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

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

 
Page updated 2018-06-23
Handle: RePEc:eee:jfinec:v:126:y:2017:i:3:p:471-489