Macroeconomic Uncertainty, Risk, and Country Index Returns: International Evidence

34 Pages Posted: 6 Sep 2012 Last revised: 21 Feb 2013

See all articles by Christine X. Jiang

Christine X. Jiang

Fudan University

Steven J. Jordan

Econometric Solutions

Bhavik Parikh

Saint Francis Xavier University

Date Written: January 14, 2013

Abstract

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

Jiang, Christine X. and Jordan, Steven J. and Parikh, Bhavik, Macroeconomic Uncertainty, Risk, and Country Index Returns: International Evidence (January 14, 2013). Midwest Finance Association 2013 Annual Meeting Paper, Available at SSRN: https://ssrn.com/abstract=2140026 or http://dx.doi.org/10.2139/ssrn.2140026

Christine X. Jiang

Fudan University ( email )

School of Management
Shanghai, 200433
China
862125011085 (Phone)

Steven J. Jordan

Econometric Solutions ( email )

3520 Fossil Park Dr.
Fort Worth, TX NA 76137
United States

Bhavik Parikh (Contact Author)

Saint Francis Xavier University ( email )

3090 Martha Drive
Office # 382
Antigonish, Nova Scotia B2G 2P4
Canada
902-867-4926 (Phone)

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