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Which uncertainty measures matter for the cross-section of stock returns?#

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  • Lee, Kiryoung
  • Joen, Yoontae
  • Kim, Minki

Abstract

Using recently developed various economic uncertainty measures, we provide a comparison of their pricing power for the cross-section of stock returns during the most recent period. We consider measures by Jurado et al. (2015), Bekaert et al. (2021), the Economic Policy Uncertainty by Baker et al. (2016), and the S&P 500 implied and realized volatilities. Using individual stocks and 100 equity portfolios from 1990 to 2019, we find that the realized volatility exhibits the strongest explanatory power for the cross-section of stock returns. We also find that many of the previous findings are not robust to our empirical approach and sample period.

Suggested Citation

  • Lee, Kiryoung & Joen, Yoontae & Kim, Minki, 2022. "Which uncertainty measures matter for the cross-section of stock returns?#," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321003901
    DOI: 10.1016/j.frl.2021.102390
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    More about this item

    Keywords

    Economic uncertainty index; Cross-section of stock returns;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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