Macroeconomic and Political Uncertainty and Cross Sectional Return Dispersion Around the World
92 Pages Posted: 4 Sep 2017
Date Written: September 4, 2017
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: Suggested Citation