Uncertainty Shocks as Second-Moment News Shocks
By David Berger, Ian Dew-Becker, Stefano Giglio. The Review of Economic Studies, 2017
172 citations recorded by the source corpus.
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.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/5a34c814d78d0039995283d00cba17111f1557f2
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In Economics and Econometrics
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In Finance
Citations in the corpus
- Nonlinearity and Flight‐to‐Safety in the Risk‐Return Trade‐Off for Stocks and Bonds (2019, unknown): “Along similar lines, Berger et al. (2017) identify uncertainty shocks as second-moment news shocks and find that shocks to uncertainty have no significant effect on the real economy, whereas shocks to stock market volatility do.”
- Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession (2017, background): “In addition, Jurado, Ludvigson and Ng (2015) identify 2007–2009 as “the most striking period of heightened uncertainty since 1960,” and Berger et al. (2019) emphasize the importance of left-skewed shocks for matching the relationship between uncertainty and the macroeconomy.”
- Measuring Geopolitical Risk (2018, background): “Berger, Dew-Becker, and Giglio (2019) find that expectations about future volatility are not contractionary after controlling for current volatility.”
- Policy News and Stock Market Volatility (2019, unknown): “After selecting our best-firm term set using data from 1990 to 2015, we obtained the VIX data developed in Berger et al. (2019) back to 1983.”