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http://ssrn.com/abstract=2023066
 
 

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Unknown Unknowns: Uncertainty About Risk and Stock Returns


Guido Baltussen


Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Sjoerd Van Bekkum


Erasmus University Rotterdam - Finance Group; Tinbergen Institute

Bart Van der Grient


Robeco Asset Management - Quantitative Strategies

October 23, 2014

AFA 2013 San Diego Meetings Paper

Abstract:     
Stocks with high uncertainty about risk, as measured by the volatility of volatility (vol-of-vol), robustly underperform stocks with low uncertainty about risk by 10 percent per year. This vol-of-vol effect is distinct from (combinations of) at least twenty previously documented return predictors, survives many robustness checks, and holds in the U.S. and across European stock markets. We empirically explore the pricing mechanism behind the vol-of-vol effect. The evidence points towards preference-based explanations, and points away from various alternative explanations. Collectively, our results show that uncertainty about risk is highly relevant for stock prices.

Number of Pages in PDF File: 76

Keywords: asset pricing, stock returns, uncertainty

JEL Classification: G10, G12, D80

working papers series





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Date posted: March 20, 2012 ; Last revised: October 24, 2014

Suggested Citation

Baltussen, Guido and van Bekkum, Sjoerd and van der Grient, Bart, Unknown Unknowns: Uncertainty About Risk and Stock Returns (October 23, 2014). AFA 2013 San Diego Meetings Paper. Available at SSRN: http://ssrn.com/abstract=2023066 or http://dx.doi.org/10.2139/ssrn.2023066

Contact Information

Guido Baltussen
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )
P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
Sjoerd Van Bekkum (Contact Author)
Erasmus University Rotterdam - Finance Group ( email )
P.O. Box 1738
Rotterdam, NL 3062 PA
Netherlands
Tinbergen Institute ( email )
P.O. Box 1738
Rotterdam
Netherlands
Bart Van der Grient
Robeco Asset Management - Quantitative Strategies ( email )
P.O. Box 973
3000 AZ Rotterdam
Netherlands
HOME PAGE: http://www.robeco.com
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