Macroeconomic Uncertainty and Expected Stock Returns

  title={Macroeconomic Uncertainty and Expected Stock Returns},
  author={Turan G. Bali and Stephen J. Brown and Yi Tang},
This paper introduces a broad index of macroeconomic uncertainty based on the ex-ante measures of cross-sectional dispersion in economic forecasts by the Survey of Professional Forecasters. We estimate individual stock exposures to a newly proposed measure of economic uncertainty index and find that the resulting uncertainty beta predicts a significant proportion of the cross-sectional dispersion in stock returns. After controlling for a large set of stock characteristics and risk factors, we… 

Figures and Tables from this paper

Macro Uncertainty and Currency Premia
This paper studies empirically the relation between macro uncertainty shocks and the cross-section of currency excess returns. We measure uncertainty over macro variables such as current account,
Cross-sectional dispersion and expected returns
This study investigates whether the cross-sectional dispersion of stock returns, which reflects the aggregate level of idiosyncratic risk in the market, represents a priced state variable. We find
Investors’ Uncertainty and Stock Market Risk
Abstract The authors propose a novel approach to model investors' uncertainty using the conditional volatility of investors' sentiment. Working with weekly data on investor sentiment, 6 major U.S.
Macroeconomic Factors and Equity Returns in Borsa Istanbul
This paper investigates equity return exposure to various macroeconomic factors and the performance of factor betas in predicting the cross-sectional variation in stock returns. We utilize a two-step
Ambiguous Information about Interest Rates and Bond Uncertainty Premiums
This paper studies the impact of ambiguous information regarding future interest rates on bond prices. A simple bond-pricing model with ambiguity aversion shows that positive bond uncertainty
Investigating the Drivers of International Comovement in Real Financial Asset Returns
There is a substantial body of theoretical and empirical research on asset price comovement and determinants. The empirical analysis in this paper differs in that it incorporates a channel for cross
Disagreement Beta
When two investors agree to disagree on future prospects of the market and trade accordingly, they both expect to profit from their trades. Hence, disagreement is a state variable positively linked
Trends Everywhere? The Case of Hedge Fund Styles
This paper investigates empirically whether time-series momentum returns can explain the performance of hedge funds in the cross section. Relying on the trend-following literature, a


Understanding Risk and Return
This paper uses an equilibrium multifactor model to interpret the cross-sectional pattern of postwar U.S. stock and bond returns. Priced factors include the return on a stock index, revisions in
Macroeconomic Risk and Hedge Fund Returns
This paper estimates hedge fund and mutual fund exposure to newly proposed measures of macroeconomic risk that are interpreted as measures of economic uncertainty. We find that the resulting
Risk, Uncertainty, and Expected Returns
Abstract A conditional asset pricing model with risk and uncertainty implies that the time-varying exposures of equity portfolios to the market and uncertainty factors carry positive risk premia. The
The Cross Section of Expected Stock Returns
This paper studies the cross-sectional properties of return forecasts derived from Fama-MacBeth regressions. These forecasts mimic how an investor could, in real time, combine many firm
The Cross-Section of Volatility and Expected Returns
We examine the pricing of aggregate volatility risk in the cross-section of stock returns. Consistent with theory, we find that stocks with high sensitivities to innovations in aggregate volatility
An Intertemporal CAPM with Stochastic Volatility
This paper studies the pricing of volatility risk using the first-order conditions of a long-term equity investor who is content to hold the aggregate equity market rather than tilting towards value
Risk, Uncertainty and Asset Prices
The impact of risk and uncertainty on expected returns.
Why Does Stock Market Volatility Change Over Time?
This paper analyzes the relation of stock volatility with real and nominal macroeconomic volatility, financial leverage, stock trading activity, default risk, and firm profitability using monthly
Delta-Hedged Gains and the Negative Market Volatility Risk Premium
We investigate whether the volatility risk premium is negative by examining the statistical properties of delta-hedged option portfolios (buy the option and hedge with stock). Within a stochastic