Risk, Uncertainty, and Expected Returns

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract A conditional asset pricing model with risk and uncertainty implies that the timevarying exposures of equity portfolios to the market and uncertainty factors carry positive risk premiums. The empirical results from the size, book-to-market, and industry portfolios as well as individual stocks indicate that the conditional covariances of equity portfolios (individual stocks) with market and uncertainty predict the timeseries and cross-sectional variation in stock returns. We find that equity portfolios that are highly correlated with economic uncertainty proxied by the variance risk premium (VRP) carry a significant, annualized 6 to 8 percent premium relative to portfolios that are minimally correlated with VRP. Terms of use: Documents in EconStor mayJEL classification: G10, G11, C13.

Financial Uncertainty with Ambiguity and Learning

“…Apart from that, the endogenous pessimism greatly decreases the equity value but increases conditional equity premium. Thus, in line with existing empirical results (see , Bali and Zhou (2016) and ), the risk-neutral variance carries a positive risk premium in our model.…”

“…The empirical analysis shows that VIX leads macroeconomic uncertainty positively, which is consistent with the prediction of our benchmark model. Without productivity volatility risk, the model is unable to generate a significantly positive relation between VIX and consumption volatility, which is, nevertheless, an important empirical observation and at the heart of a number of consumptionbased models (e.g., , Drechsler (2013), Zhou and Zhu (2014) and Bali and Zhou (2016)).…”

The Influence of ESG Ratings On Idiosyncratic Stock Risk: The Unrated, the Good, the Bad, and the Sinners

“…Since uncertainty regarding a company’s risk is not covered by standard systematic risk measures (Anderson et al. 2009 ; Bali and Zhou 2016 ; Brenner and Izhakian 2018 ), it contributes to idiosyncratic stock risk. A decrease of information asymmetries reduces uncertainty and, therefore, idiosyncratic stock risk.…”

Evaluating investment strategies among the international financial markets

“…The time-series momentum strategy tends to be on average shorter in recessions than in booms independent of the trading signal used. Hutchinson and O'Brien (2015) following on Bali et al (2016), showed that in periods where economic uncertainty is lower, the returns of time series momentum are indeed higher. They indicate that about 40 percent of the returns of time series momentum are due to time varying exposure to macroeconomic variables, which are related to the business cycle.…”