IDEAS home Printed from https://ideas.repec.org/a/aea/aejmac/v15y2023i2p65-96.html
   My bibliography  Save this article

Cross-Sectional Uncertainty and the Business Cycle: Evidence from 40 Years of Options Data

Author

Listed:
  • Ian Dew-Becker
  • Stefano Giglio

Abstract

This paper presents a novel and unique measure of cross-sectional uncertainty constructed from stock options on individual firms. Cross-sectional uncertainty varied little between 1980 and 1995 and subsequently had three distinct peaks—during the tech boom, the financial crisis, and the coronavirus epidemic. Cross-sectional uncertainty has had a mixed relationship with overall economic activity, and aggregate uncertainty is much more powerful for forecasting aggregate growth. The data and moments can be used to calibrate and test structural models of the effects of uncertainty shocks. In international data, we find similar dynamics and a strong common factor in cross-sectional uncertainty.

Suggested Citation

  • Ian Dew-Becker & Stefano Giglio, 2023. "Cross-Sectional Uncertainty and the Business Cycle: Evidence from 40 Years of Options Data," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 65-96, April.
    • Handle: RePEc:aea:aejmac:v:15:y:2023:i:2:p:65-96
    DOI: 10.1257/mac.20210136
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/mac.20210136
    Download Restriction: no
    File URL: https://doi.org/10.3886/E150921V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/mac.20210136.ds
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://libkey.io/10.1257/mac.20210136?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jozef Barunik & Mattia Bevilacqua & Michael Ellington, 2023. "Common Firm-level Investor Fears: Evidence from Equity Options," Papers 2309.03968, arXiv.org.
    2. Yu, Deshui & Huang, Difang, 2023. "Cross-sectional uncertainty and expected stock returns," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 321-340.
    3. Altig, Dave & Baker, Scott & Barrero, Jose Maria & Bloom, Nicholas & Bunn, Philip & Chen, Scarlet & Davis, Steven J. & Leather, Julia & Meyer, Brent & Mihaylov, Emil & Mizen, Paul & Parker, Nicholas &, 2020. "Economic uncertainty before and during the COVID-19 pandemic," Journal of Public Economics, Elsevier, vol. 191(C).
    4. Neuhierl, Andreas & Tang, Xiaoxiao & Varneskov, Rasmus Tangsgaard & Zhou, Guofu, 2022. "Option characteristics as cross-sectional predictors," LawFin Working Paper Series 37, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
    5. Lu, Fei & Ma, Feng, 2023. "Cross-sectional uncertainty and stock market volatility: New evidence," Finance Research Letters, Elsevier, vol. 57(C).
    6. Herskovic, Bernard & Kind, Thilo & Kung, Howard, 2023. "Micro uncertainty and asset prices," Journal of Financial Economics, Elsevier, vol. 149(1), pages 27-51.
    7. Zhen Yu & Yuankun Li & Jing Zhao, 2023. "Epidemic outbreak and foreign direct investment fluctuation," The World Economy, Wiley Blackwell, vol. 46(4), pages 1051-1081, April.
    8. Karau, Sören, 2021. "Monetary policy and Bitcoin," Discussion Papers 41/2021, Deutsche Bundesbank.
    9. Gondhi, Naveen, 2023. "Rational inattention, misallocation, and the aggregate economy," Journal of Monetary Economics, Elsevier, vol. 136(C), pages 50-75.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmac:v:15:y:2023:i:2:p:65-96. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.