The equity premium and the disconnect between uncertainty and volatility: A global perspective

Marcelo Fernandes, Bradley Paye and Carolina Magda da Silva Roma

The Quarterly Review of Economics and Finance, 2025, vol. 103, issue C

Abstract: We construct measures of the time-varying degree of disconnection between uncertainty and volatility for various international equity markets. We show that a strong global component drives the disconnect processes across countries. Building upon prior work focused on the US equity market, we provide an international perspective that confirms and strengthens evidence linking time-variation in the equity premium with uncertainty. Predictability appears to be driven almost exclusively by common (global) variance and uncertainty, consistent with the predictions of benchmark international asset pricing models featuring integrated markets.

Keywords: Common factor; Equity premium; Predictability; Uncertainty; Volatility (search for similar items in EconPapers)
JEL-codes: G12 G14 G34 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:103:y:2025:i:c:s1062976925000511

DOI: 10.1016/j.qref.2025.102010

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