We investigate the relationship between long-term U.S. stock market risks and the macroeconomic environment using a two component GARCH-MIDAS model.Our results provide strong evidence in favor of counter-cyclical behavior of longterm stock market volatility. Among the various macro variables in our dataset the term spread, housing starts, corporate profits and the unemployment rate have the highest predictive ability for stock market volatility. While the term spread and housing starts are leading variables with respect to stock market volatility, for corporate profits and the unemployment rate expectations data from the Survey of Professional Forecasters regarding the future development are most informative.Our results suggest that macro variables carry information on stock market risk beyond that contained in lagged realized volatilities, in particular when it comes to long-term forecasting.

We investigate the relationship between long-term U.S. stock market risks and the macroeconomic environment using a two component GARCH-MIDAS model.Our results provide strong evidence in favor of counter-cyclical behavior of longterm stock market volatility. Among the various macro variables in our dataset the term spread, housing starts, corporate profits and the unemployment rate have the highest predictive ability for stock market volatility. While the term spread and housing starts are leading variables with respect to stock market volatility, for corporate profits and the unemployment rate expectations data from the Survey of Professional Forecasters regarding the future development are most informative.Our results suggest that macro variables carry information on stock market risk beyond that contained in lagged realized volatilities, in particular when it comes to long-term forecasting.

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We propose a new measure of the expected variance risk premium that is based on a forecast of the conditional variance from a GARCH-MIDAS model. We find that the new measure has strong predictive ability for future U.S. aggregate stock market returns and rationalize this result by showing that the new measure effectively isolates fundamental uncertainty as the factor that drives the variance risk premium.