Working Paper: NBER ID: w31878
Authors: Ian Dewbecker; Stefano Giglio
Abstract: This paper reviews recent developments in macro and finance on the relationship between financial risk and the real economy. We focus on three specific topics: the term structure of uncertainty, time variation - and specifically the long-term decline - in the variance risk premium, and time variation in conditional skewness. We also introduce two new data series: implied volatility from one-day options on grains for the period 1906-1936, and on cliquet options, which provide insurance against single-day crashes on the S&P 500, both of which give some context to the recent rise in trade in extremely short-dated options. Finally, we discuss new avenues for future research.
Keywords: No keywords provided
JEL Codes: E10; G10; G12; G13; N1; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decline in variance risk premium (G40) | investor behavior (G41) |
| conditional skewness (C46) | macroeconomic outcomes (E66) |
| financial risk (G32) | GDP (E20) |
| financial risk (G32) | macroeconomic aggregates (E10) |
| conditional volatility (C10) | macroeconomic performance (E66) |