We investigate the effects of economic uncertainty on the return volatility of financial assets, including equities, bonds, foreign exchange and commodities. We use several popular measures of economic uncertainty, and find the uncertainty displays significant but heterogeneous effect on...

Contrary to the theoretical principle that higher risk is compensated with higher expected return, the literature shows that low-risk stocks outperform high-risk stocks. Using a large-scale household dataset, we provide an explanation for this puzzling result that the anomalous negative...

We document the predictive ability and economic significance of global economic policy uncertainty for U.S. equity returns. After orthogonalizing global economic policy uncertainty (global EPU) with respect to the U.S. EPU, we find that it has significant predictive power for aggregate stock...

Time-varying risk premiums are a natural consequence of prudent savings behavior. Prudence prescribes a countercyclical marginal propensity to consume which leads to countercyclical consumption volatility and risk premiums. This "prudential uncertainty" channel is amplified by external habit,...

We investigate the role of economic uncertainty in the cross-sectional pricing of individual stocks and equity portfolios. We estimate stock exposure to an economic uncertainty index and show that stocks in the lowest uncertainty beta decile generate 6% more annualized risk-adjusted return...

Many consumption-based models succeed in matching long lists of asset price moments. We propose an alternative, full-information Bayesian evaluation that decomposes the price-dividend ratio (p/d) into contributions from long-run risks, habit, and a residual. We find that long-run risks account...

A standard real business cycle model with external habit and capital adjustment costs matches a long list of asset price and business cycle moments: equity, firm value, and risk-free rate volatility; the equity premium; excess return predictability; consumption growth predictability; basic...

This paper develops a novel empirical method that uses property level cash flow information to estimate the risk and return characteristics of private commercial real estate. Monte Carlo simulations suggest that this method is more accurate than the conventional index-based approach. Applying...

This study introduces a monthly news-based economic policy uncertainty index for New Zealand (NZ EPU) and examines the pricing implications of our newly constructed NZ EPU on a large sample of institutional investors. We find that NZ EPU is a priced and an undiversifiable risk factor that...

We produce novel empirical evidence on the relevance of temperature volatility shocks for the dynamics of macro aggregates and asset prices. Using two centuries of UK temperature data, we document that the relationship between temperature volatility and the macroeconomy varies over time. First,...