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Uncertainty risk and the cross-section of stock returns: Insights from frequency decomposition

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  • Iania, Leonardo
  • Nguyen, P. Thao
  • Smedts, Kristien

Abstract

This paper decomposes economic uncertainty into frequency-specific components and examines the pricing implications of uncertainty as a source of systematic risk across different degrees of persistence. Using an extension of the Wold decomposition, we separate the uncertainty risk measures into orthogonal components and form a linear factor model in which frequency-specific uncertainty betas can be independently estimated. This allows us to assess the individual uncertainty risk premia associated with each frequency. We provide evidence of heterogeneity in both the magnitude and sign of the uncertainty risk premium across different frequencies.

Suggested Citation

  • Iania, Leonardo & Nguyen, P. Thao & Smedts, Kristien, 2026. "Uncertainty risk and the cross-section of stock returns: Insights from frequency decomposition," Finance Research Letters, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:finlet:v:96:y:2026:i:c:s1544612326002382
    DOI: 10.1016/j.frl.2026.109707
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