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On the different approaches of measuring uncertainty shocks

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  • Strobel, Johannes

Abstract

As uncertainty has become an increasingly prominent source of business cycle fluctuations, various uncertainty proxies have been proposed in the literature. This paper shows that uncertainty measures based on realized variables fluctuate more than the measures that are based on forecasts. More precisely, the variation in the realized cross-sectional standard deviation of profit growth and stock returns is larger than the variation in the forecast standard deviation. Moreover, the forecast standard deviation of profit growth and stock returns are negatively or uncorrelated, the uncertainty measures increase stock returns due to a risk premium, but they decrease profit growth.

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  • Strobel, Johannes, 2015. "On the different approaches of measuring uncertainty shocks," Economics Letters, Elsevier, vol. 134(C), pages 69-72.
    • Handle: RePEc:eee:ecolet:v:134:y:2015:i:c:p:69-72
    DOI: 10.1016/j.econlet.2015.06.012
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    References listed on IDEAS

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    Cited by:

    1. Balcilar, Mehmet & Demirer, Riza & Gupta, Rangan & van Eyden, Reneé, 2017. "The impact of US policy uncertainty on the monetary effectiveness in the Euro area," Journal of Policy Modeling, Elsevier, vol. 39(6), pages 1052-1064.
    2. Johannes Strobel & Binh Nguyen Thanh & Gabriel Lee, 2020. "Effects of Macroeconomic Uncertainty and Labor Demand Shocks on the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(2), pages 345-372, June.
    3. Mehmet Balcilar & Rangan Gupta & Clement Kyei & Mark E. Wohar, 2016. "Does Economic Policy Uncertainty Predict Exchange Rate Returns and Volatility? Evidence from a Nonparametric Causality-in-Quantiles Test," Open Economies Review, Springer, vol. 27(2), pages 229-250, April.
    4. Stavros Degiannakis & George Filis, 2019. "Forecasting European economic policy uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(1), pages 94-114, February.
    5. Rangan Gupta & Amine Lahiani & Chi-Chuan Lee & Chien-Chiang Lee, 2019. "Asymmetric dynamics of insurance premium: the impacts of output and economic policy uncertainty," Empirical Economics, Springer, vol. 57(6), pages 1959-1978, December.
    6. Christou, Christina & Gupta, Rangan, 2020. "Forecasting equity premium in a panel of OECD countries: The role of economic policy uncertainty," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 243-248.
    7. Chow Sheung-Chi & Cunado Juncal & Gupta Rangan & Wong Wing-Keung, 2018. "Causal relationships between economic policy uncertainty and housing market returns in China and India: evidence from linear and nonlinear panel and time series models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 22(2), pages 1-15, April.
    8. Mehmet Balcilar & Riza Demirer & Rangan Gupta & Reneé van Eyden, 2016. "Effectiveness of Monetary Policy in the Euro Area: The Role of US Economic Policy Uncertainty," Working Papers 201620, University of Pretoria, Department of Economics.
    9. Christou, Christina & Gupta, Rangan & Hassapis, Christis, 2017. "Does economic policy uncertainty forecast real housing returns in a panel of OECD countries? A Bayesian approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 50-60.
    10. Chuliá, Helena & Gupta, Rangan & Uribe, Jorge M. & Wohar, Mark E., 2017. "Impact of US uncertainties on emerging and mature markets: Evidence from a quantile-vector autoregressive approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 178-191.
    11. Bahloul, Walid & Balcilar, Mehmet & Cunado, Juncal & Gupta, Rangan, 2018. "The role of economic and financial uncertainties in predicting commodity futures returns and volatility: Evidence from a nonparametric causality-in-quantiles test," Journal of Multinational Financial Management, Elsevier, vol. 45(C), pages 52-71.
    12. Gupta, Rangan & Pierdzioch, Christian & Risse, Marian, 2016. "On international uncertainty links: BART-based empirical evidence for Canada," Economics Letters, Elsevier, vol. 143(C), pages 24-27.
    13. Rangan Gupta & Chi Keung Marco Lau & Mark E. Wohar, 2019. "The impact of US uncertainty on the Euro area in good and bad times: evidence from a quantile structural vector autoregressive model," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 46(2), pages 353-368, May.
    14. Fang, Libing & Qian, Yichuo & Chen, Ying & Yu, Honghai, 2018. "How does stock market volatility react to NVIX? Evidence from developed countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 490-499.
    15. Christou, Christina & Cunado, Juncal & Gupta, Rangan & Hassapis, Christis, 2017. "Economic policy uncertainty and stock market returns in PacificRim countries: Evidence based on a Bayesian panel VAR model," Journal of Multinational Financial Management, Elsevier, vol. 40(C), pages 92-102.
    16. Aye, Goodness C., 2021. "Short and Long Run Asymmetric Effects of Monetary and Fiscal Policy Uncertainty on Economic Activity in the U.S," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 74(1), pages 83-96.
    17. Su, Zhi & Fang, Tong & Yin, Libo, 2017. "The role of news-based implied volatility among US financial markets," Economics Letters, Elsevier, vol. 157(C), pages 24-27.
    18. Binh Nguyen Thanh & Johannes Strobel & Gabriel Lee, 2020. "A New Measure of Real Estate Uncertainty Shocks," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(3), pages 744-771, September.
    19. Goodness C. Aye, 2019. "Short and Long Run Asymmetric Effects of Monetary and Fiscal Policy Uncertainty on Economic Activity in the U.S," Working Papers 201923, University of Pretoria, Department of Economics.
    20. Jacobus Nel & Rangan Gupta & Mark E. Wohar & Christian Pierdzioch, 2022. "Climate Risks and Predictability of Commodity Returns and Volatility: Evidence from Over 750 Years of Data," Working Papers 202242, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Uncertainty shocks; Sectoral impact; GARCH-in-mean; Profit growth;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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