Macroeconomic Uncertainty and the Cross-Section of Option Returns

I empirically investigate whether macroeconomic uncertainty is a priced risk factor in the cross-section of equity and index option returns. The analysis employs a non-linear factor model, estimated with the Fama-MacBeth methodology, where the macroeconomic uncertainty factor is the return on a long/short portfolio of equity options, built on the basis of how implied volatilities change around scheduled macroeconomic announcements. I find that macroeconomic uncertainty is priced in the cross-section of option returns, even after controlling for a large set of relevant factors. The results are also robust to alternative ways of measuring option returns, and to the non-random pattern of missing returns