Resolving Macroeconomic Uncertainty in Stock and Bond Markets

Posted: 17 Jan 2009

See all articles by Alessandro Beber

Alessandro Beber

Cass Business School; Centre for Economic Policy Research (CEPR)

Michael W. Brandt

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: January 2009

Abstract

We establish an empirical link between the ex-ante uncertainty about macroeconomic fundamentals and the ex-post resolution of this uncertainty in financial markets. We measure macroeconomic uncertainty using prices of economic derivatives and relate this measure to changes in implied volatilities of stock and bond options when the economic data is released. Higher macroeconomic uncertainty is associated with greater reduction in implied volatilities following the news release. It is also associated with increased volume and decreased open interest in option markets after the release, consistent with market participants using financial options to hedge or speculate on macroeconomic news.

Suggested Citation

Beber, Alessandro and Brandt, Michael W., Resolving Macroeconomic Uncertainty in Stock and Bond Markets (January 2009). Review of Finance, Vol. 13, Issue 1, pp. 1-45, 2009. Available at SSRN: https://ssrn.com/abstract=1328780 or http://dx.doi.org/rfn025

Alessandro Beber (Contact Author)

Cass Business School ( email )

London, EC2Y 8HB
Great Britain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Michael W. Brandt

Duke University - Fuqua School of Business ( email )

1 Towerview Drive
Durham, NC 27708-0120
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,135
PlumX Metrics