This study examines whether investors’ attitudes toward ambiguity can explain cross-sectional stock returns by investigating the relationship between future stock returns and option-implied volatilities as well as implied third moments. We find that investors’ attitudes toward different...

We study how monetary policy and risk shocks affect asset prices in the US, the euro area, and Japan, differentiating between "traditional" monetary policy and communication events, each decomposed into "pure" and information shocks. Communication shocks from the US spill over to risk in the...

Empirical measures of world consumption growth risk have failed to rationalize the cross-section of country equity returns. We propose a new factor, termed "the global consumption factor", to explain the patterns in risk premiums on international equity markets. We identify this factor as the...

Deviations from the CAPM have generally been observed for the stock markets. One of many alternative approaches is using macro variables as systematic risks. We tested with a number of macro risks for the explanation of Finnish industry returns for a period from 1993:03 until 2008:07. The...

This paper studies the relationship between the cross section of stock returns and firm specific jump risk. Using option data, we estimate various option-based time-series. Sorting firms according to their firm specific jump risk, we find that this risk is priced for small stocks. Furthermore,...

This paper investigates how the downside tail risk of stock returns is differentiated cross-sectionally. Stock returns follow heavy-tailed distributions with downside tail risk determined by the tail shape and scale. If safety-first investors are concerned with sufficiently large downside...

This paper estimates global bad and good uncertainties from monthly data on industrial production from a large set of countries. Bad and good uncertainties have opposite effects on macro aggregates and stock returns. An increase in bad uncertainty adversely impacts both, while an increase in...

I employ a parsimonious model with learning but without conditioning information to extract time-varying measures of market-risk sensitivities, pricing errors and pricing uncertainty. Parameters estimated for U.S. equity portfolios show significant fluctuations, along patterns that change across...

In the finance literature, a common practice is to create characteristic portfolios by sorting on characteristics associated with average returns. We show that the resulting portfolios are likely to capture not only the priced risk associated with the characteristic, but also unpriced risk. We...