Resolving macroeconomic uncertainty in stock and bond markets

Published

Journal Article

We establish an empirical link between the ex-ante uncertainty about macroeconomic fundamentals and the ex-post resolution of this uncertainty in financial markets.We measure macroeconomic uncertainty using prices of economic derivatives and relate thismeasure to changes in implied volatilities of stock and bond options when the economic data is released. Higher macroeconomic uncertainty is associated with greater reduction in implied volatilities following the news release. It is also associated with increased volume and decreased open interest in option markets after the release, consistent with market participants using financial options to hedge or speculate on macroeconomic news.

Full Text

Duke Authors

Cited Authors

  • Beber, A; Brandt, MW

Published Date

  • January 1, 2009

Published In

Volume / Issue

  • 13 / 1

Start / End Page

  • 1 - 45

Electronic International Standard Serial Number (EISSN)

  • 1573-692X

International Standard Serial Number (ISSN)

  • 1572-3097

Digital Object Identifier (DOI)

  • 10.1093/rof/rfn025

Citation Source

  • Scopus