Work

Risk, Uncertainty, and Expected Returns

Year: 2012

Type: article

Abstract: A conditional asset pricing model with risk and uncertainty implies that the time-varying exposures of equity portfolios to the market and uncertainty factors carry positive risk premiums. The empirical results from the size, book-to-market, momentum, and industry portfolios indicate that the conditional covariances of equity portfolios with market and uncertainty predict the time-series and cross-sectional variation in stock returns. We find that equity portfolios that are highly correlated with economic uncertainty proxied by the variance risk premium (VRP) carry a significant, annualized 8 percent premium relative to portfolios that are minimally correlated with VRP.

Source: Journal of Financial and Quantitative Analysis

DOI: 10.1017/s0022109016000417

Authors: Turan G. Bali, Hao Zhou

Institutions: Georgetown University, Tsinghua University

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3125218009

FWCI: 14.35

Cites: 88

Cited by: 198

Related to: 10