Cross-Sectional Uncertainty and the Business Cycle: Evidence from 40 Years of Options Data / Ian Dew-Becker, Stefano Giglio.

Format:

Book

Author/Creator:

Dew-Becker, Ian.

Contributor:

National Bureau of Economic Research.

Giglio, Stefano.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27864.

NBER working paper series no. w27864

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

This paper presents a novel and unique measure of cross-sectional uncertainty constructed from stock options on individual firms. Cross-sectional uncertainty varied little between 1980 and 1995, and subsequently had three distinct peaks -- during the tech boom, the financial crisis, and the coronavirus epidemic. Cross-sectional uncertainty has had a mixed relationship with overall economic activity, and aggregate uncertainty is much more powerful for forecasting aggregate growth. The data and moments can be used to calibrate and test structural models of the effects of uncertainty shocks. In international data, we find similar dynamics and a strong common factor in cross-sectional uncertainty. The data is available on our websites. A companion paper [Dew-Becker and Giglio, "Real-time forward-looking skewness over the business cycle"] finds firm-level skewness is significantly procyclical.

Notes:

Print version record

September 2020.