Uncertainty Shocks as Second-Moment News Shocks

Journal Article (Journal Article)

First version received April 2018; Editorial decision January 2019; Accepted February 2019 (Eds.) We provide evidence on the relationship between aggregate uncertainty and the macroeconomy. Identifying uncertainty shocks using methods from the news shocks literature, the analysis finds that innovations in realized stock market volatility are robustly followed by contractions, while shocks to forward-looking uncertainty have no significant effect on the economy. Moreover, investors have historically paid large premia to hedge shocks to realized but not implied volatility. A model in which fundamental shocks are skewed left can match those facts. Aggregate volatility matters, but it is the realization of volatility, rather than uncertainty about the future, that has been associated with declines.

Full Text

Duke Authors

Cited Authors

  • Berger, D; Dew-Becker, I; Giglio, S

Published Date

  • January 1, 2020

Published In

Volume / Issue

  • 87 / 1

Start / End Page

  • 40 - 76

Electronic International Standard Serial Number (EISSN)

  • 1467-937X

International Standard Serial Number (ISSN)

  • 0034-6527

Digital Object Identifier (DOI)

  • 10.1093/RESTUD/RDZ010

Citation Source

  • Scopus