Macroeconomic and Political Uncertainty and Cross Sectional Return Dispersion Around the World

92 Pages Posted: 4 Sep 2017

See all articles by Yuk Ying (Candie) Chang

Yuk Ying (Candie) Chang

Massey University

Ben Jacobsen

Tilburg University - TIAS School for Business and Society; Massey University

Lillian Zhu

University of Edinburgh, Business School, Students

Date Written: September 4, 2017

Abstract

Cross sectional return dispersion seems a simple, good, real time gauge of uncertainty. Internationally, cross-sectional return dispersion correlates strongly with all sorts of measures of macroeconomic and political uncertainty like, (global) recessions, international political crises, country risk, and uncertainty related to government policies. While we find that return dispersion and implied volatility are correlated, surprisingly only return dispersion relates to the cross section of returns. Return dispersion seems to capture political uncertainty better. Implied volatility seems linked stronger to economic uncertainty.

Keywords: Return dispersion, implied volatility, business cycles, political risk, economic policy uncertainty, stock returns.

JEL Classification: G12, G15, E60

Suggested Citation

Chang, Yuk Ying and Jacobsen, Ben and Zhu, Lillian, Macroeconomic and Political Uncertainty and Cross Sectional Return Dispersion Around the World (September 4, 2017). Available at SSRN: https://ssrn.com/abstract=3032191 or http://dx.doi.org/10.2139/ssrn.3032191

Yuk Ying Chang

Massey University ( email )

Palmerston North
New Zealand

Ben Jacobsen

Tilburg University - TIAS School for Business and Society ( email )

Warandelaan 2
TIAS Building
Tilburg, Noord Brabant 5037 AB
Netherlands

Massey University ( email )

Auckland
New Zealand

Lillian Zhu (Contact Author)

University of Edinburgh, Business School, Students ( email )

Edinburgh
United Kingdom

HOME PAGE: http://www.business-school.ed.ac.uk/phd/current-phd-students/current-student/203/Lizhen/Zhu

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