Hedging Macroeconomic and Financial Uncertainty and Volatility

Abstract

At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w26323.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Asset Pricing With Data Revisions

“…Our second proxy of risk is the conditional volatility estimate from a Markov-switching model from Boguth and Kuehn (2013) σMS t+1 . Our final risk proxy is inspired by Dew-Becker et al (2019), who posit that a better measure for risk is realized volatility. To obtain such a measure in our context, we construct a monthly vintage data set of real nondurable consumption growth, similarly to our quarterly data set obtained from ALFRED.…”

“…, and recently inDew-Becker et al (2019). Additionally, there is strong evidence from the behavioral and experimental economics literature that attitudes towards ambiguity are state dependent, with ambiguity aversion for positive states (high probability of a gain) and ambiguity seeking for negative states (high probability of a loss), see, e.g.,Mangelsdorff and Weber (1994);Di Mauro and Maffioletti (1996);Du and Budescu (2005);Chakravarty and Roy (2009);Kothiyal (2012).…”

Manager Uncertainty and Cross-Sectional Stock Returns

“…Investors require higher compensation to hold these assets, and 3 There are dozens of firm-level uncertainty measures in the literature. Dew-Becker, Giglio, and Kelly (2019) find that option-implied volatility is over 90 percent correlated with their regression-based forecasts of future volatilities. They claim that "Option-implied volatility is a good, if not a perfect, proxy for true (physical) uncertainty."…”

“…Panel B of Table2reports the results of regressing MU on these existing firm-level uncertainty and textual related characteristics. Existing literature manifests that option-implied volatility (VOLI) is a good proxy for uncertainty (e.g., Dew-Becker,Giglio, and Kelly, 2019). The Pearson correlation between UM and VOLI is 0.14 over the whole sample period.…”