Cross-Sectional Uncertainty and the Business Cycle: Evidence from 40 Years of Options Data
American Economic Journal: Macroeconomics
vol. 15,
no. 2, April 2023
(pp. 65-96)
Abstract
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.Citation
Dew-Becker, Ian, and Stefano Giglio. 2023. "Cross-Sectional Uncertainty and the Business Cycle: Evidence from 40 Years of Options Data." American Economic Journal: Macroeconomics, 15 (2): 65-96. DOI: 10.1257/mac.20210136Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D81 Criteria for Decision-Making under Risk and Uncertainty
- E23 Macroeconomics: Production
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- G13 Contingent Pricing; Futures Pricing; option pricing
- O34 Intellectual Property and Intellectual Capital
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