Cross-Sectional Uncertainty and the Business Cycle: Evidence from 40 Years of Options Data

Ian Dew-Becker and Stefano Giglio

No 27864, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a novel and unique measure of cross-sectional uncertainty constructed from stock options on individual firms. Cross-sectional uncertainty varied little between 1980 and 1995, and subsequently had three distinct peaks -- during the tech boom, the financial crisis, and the coronavirus epidemic. Cross-sectional uncertainty has had a mixed relationship with overall economic activity, and aggregate uncertainty is much more powerful for forecasting aggregate growth. The data and moments can be used to calibrate and test structural models of the effects of uncertainty shocks. In international data, we find similar dynamics and a strong common factor in cross-sectional uncertainty. The data is available on our websites. A companion paper [Dew-Becker and Giglio, "Real-time forward-looking skewness over the business cycle"] finds firm-level skewness is significantly procyclical.

JEL-codes: C58 D81 D84 E22 E30 E32 E37 G13 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-bec, nep-ifn and nep-mac
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Citations: View citations in EconPapers (11)

Published as Ian Dew-Becker & Stefano Giglio, 2023. "Cross-Sectional Uncertainty and the Business Cycle: Evidence from 40 Years of Options Data," American Economic Journal: Macroeconomics, vol 15(2), pages 65-96.

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Related works:
Journal Article: Cross-Sectional Uncertainty and the Business Cycle: Evidence from 40 Years of Options Data (2023)
Working Paper: Cross-sectional uncertainty and the business cycle: evidence from 40 years of options data (2021)
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