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Dynamic Industry Uncertainty Networks and the Business Cycle

54 Pages Posted: 10 Mar 2021 Last revised: 1 Nov 2023 Publication Status: Under Review

See all articles by Jozef Baruník

Jozef Baruník

Charles University in Prague - Department of Economics; Institute of Information Theory and Automation, Prague

Mattia Bevilacqua

University of Liverpool - Management School (ULMS); Systemic Risk Centre - London School of Economics

Robert W. Faff

University of Queensland; Bond University

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Abstract

This paper identifies smoothly varying industry uncertainty networks from option prices that contain valuable information about business cycles, especially in terms of forecasting. Such information is stronger when the network is formed on uncertainty hubs, firms identified as the main contributors to uncertainty shocks. The stronger predictive ability of the hubs-based network is robust to a wide range of checks, the inclusion of a large set of controls, and is also confirmed out-of-sample.

Keywords: Financial Uncertainty, Industry Network, Options Market, Business Cycle

Suggested Citation

Barunik, Jozef and Bevilacqua, Mattia and Faff, Robert W., Dynamic Industry Uncertainty Networks and the Business Cycle (January 18, 2021). Available at SSRN: https://ssrn.com/abstract=3768370 or http://dx.doi.org/10.2139/ssrn.3768370

Jozef Barunik

Charles University in Prague - Department of Economics ( email )

Opletalova 26
Prague 1, 110 00
Czech Republic

HOME PAGE: http://ies.fsv.cuni.cz/en/staff/barunik

Institute of Information Theory and Automation, Prague ( email )

Pod vodarenskou vezi 4
CZ-18208 Praha 8
Czech Republic

HOME PAGE: http://staff.utia.cas.cz/barunik/home.htm

Mattia Bevilacqua (Contact Author)

University of Liverpool - Management School (ULMS) ( email )

Chatham St
Liverpool, L69 7ZH
United Kingdom

Systemic Risk Centre - London School of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Bond University ( email )

Gold Coast, QLD 4229
Australia

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