Volatility, the Macroeconomy, and Asset Prices


Journal Article

© 2014 the American Finance Association. How important are volatility fluctuations for asset prices and the macroeconomy? We find that an increase in macroeconomic volatility is associated with an increase in discount rates and a decline in consumption. We develop a framework in which cash flow, discount rate, and volatility risks determine risk premia and show that volatility plays a significant role in explaining the joint dynamics of returns to human capital and equity. Volatility risk carries a sizable positive risk premium and helps account for the cross section of expected returns. Our evidence demonstrates that volatility is important for understanding expected returns and macroeconomic fluctuations.

Full Text

Duke Authors

Cited Authors

  • Bansal, R; Kiku, D; Shaliastovich, I; Yaron, A

Published Date

  • January 1, 2014

Published In

Volume / Issue

  • 69 / 6

Start / End Page

  • 2471 - 2511

Electronic International Standard Serial Number (EISSN)

  • 1540-6261

International Standard Serial Number (ISSN)

  • 0022-1082

Digital Object Identifier (DOI)

  • 10.1111/jofi.12110

Citation Source

  • Scopus