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Recent Developments in Financial Risk and the Real Economy

Author

Listed:
  • Ian Dew-Becker

    (National Bureau of Economic Research, Cambridge, Massachusetts, USA
    Booth School of Business, University of Chicago, Chicago, Illinois, USA)

  • Stefano Giglio

    (National Bureau of Economic Research, Cambridge, Massachusetts, USA
    Yale School of Management, Yale University, New Haven, Connecticut, USA)

Abstract

In this article, we review recent developments in macroeconomics and finance on the relationship between financial risk and the real economy. We focus on three specific topics: (a) the term structure of uncertainty, (b) time variation--specifically, the long-term decline--in the variance risk premium, and (c) time variation in conditional skewness. We also introduce two new data series: implied volatility from one-day options on grains for the period 1906--1936 and prices of cliquet options, which provide insurance against single-day crashes on the S&P 500. Both series give some context to the recent rise in trade in extremely short-dated options. Finally, we discuss new avenues for future research.

Suggested Citation

  • Ian Dew-Becker & Stefano Giglio, 2024. "Recent Developments in Financial Risk and the Real Economy," Annual Review of Financial Economics, Annual Reviews, vol. 16(1), pages 39-60, November.
    • Handle: RePEc:anr:refeco:v:16:y:2024:p:39-60
    DOI: 10.1146/annurev-financial-082123-105456
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    JEL classification:

    • 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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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