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Global risks, the macroeconomy, and asset prices

Author

Listed:
  • Michele Costola

    (Ca’ Foscari University of Venice)

  • Michael Donadelli

    (University of Brescia)

  • Luca Gerotto

    (Ca’ Foscari University of Venice
    Università Cattolica del Sacro Cuore)

  • Ivan Gufler

    (LUISS Guido Carli)

Abstract

We propose a novel index of global risks awareness (GRAI) based on the most concerning risks—classified in five categories (economic, environmental, geopolitical, societal, and technological)—reported by the World Economic Forum (WEF) according to the potential impact and likelihood occurrence. The degree of public concern toward these risks is captured by Google search volumes on topics having the same or similar wording of that one of the WEF Global Risk Report. The dynamics of our GRAI exhibits several spillover episodes and indicates that concerns on the five different categories of global risks are—on average—highly interconnected. We further examine the interconnection between global risks perceptions and the macroeconomy and find that concerns on economic-, geopolitical-, and societal-related risks are net shock transmitters, whereas the macroeconomic variables are largely net receivers. Finally, we perform standard cross-sectional asset pricing tests and provide evidence that rising interconnection among global risks awareness commands a positive and statistically significant risk premium.

Suggested Citation

  • Michele Costola & Michael Donadelli & Luca Gerotto & Ivan Gufler, 2022. "Global risks, the macroeconomy, and asset prices," Empirical Economics, Springer, vol. 63(5), pages 2357-2388, November.
    • Handle: RePEc:spr:empeco:v:63:y:2022:i:5:d:10.1007_s00181-022-02205-9
    DOI: 10.1007/s00181-022-02205-9
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    More about this item

    Keywords

    Global risks; Uncertainty; Google searches; Macrodynamics; Asset prices;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • 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

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