Macroeconomic Uncertainty, Risk, and Country Index Returns: International Evidence
34 Pages Posted: 6 Sep 2012 Last revised: 21 Feb 2013
Date Written: January 14, 2013
This paper investigates the relation between uncertainty and stock index returns for 15 countries. An innovation is to use macro-uncertainty at both the country and global level. Our results suggest that country-speciﬁc GDP uncertainty, but not global GDP uncertainty is positively correlated with country returns. In contrast, we ﬁnd that global inﬂation uncertainty, but not country inﬂation uncertainty, is negatively correlated to country returns. Thus, macro-uncertainty is a priced risk factor and differentiation between speciﬁc and common uncertainty important. Our results are robust across various measures of uncertainty and for several different models of volatility.
Keywords: Uncertainty, Risk, International Financial Markets
JEL Classification: D81, G32, G15
Suggested Citation: Suggested Citation