NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Resolving Macroeconomic Uncertainty in Stock and Bond Markets

Alessandro Beber, Michael W. Brandt

NBER Working Paper No. 12270
Issued in June 2006
NBER Program(s):   AP

We establish an empirical link between the ex-ante uncertainty about macroeconomic fundamentals and the ex-post resolution of this uncertainty in financial markets. We measure macroeconomic uncertainty using prices of economic derivatives and relate this measure to changes in implied volatilities of stock and bond options when the economic data is released. We also examine the relationship between our measure of macroeconomic uncertainty and trading activity in stock and bond option markets before and after the announcements. Higher macroeconomic uncertainty is associated with greater reduction in implied volatilities. Higher macroeconomic uncertainty is also associated with increased volume in option markets after the release, consistent with market participants waiting to trade until economic uncertainty is resolved, and with decreased open interest in option markets after the release, consistent with market participants using financial options to hedge macroeconomic uncertainty. The empirical relationships are strongest for long-term bonds and weakest for non-cyclical stocks.

download in pdf format
   (306 K)

email paper

This paper is available as PDF (306 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12270

Published: Alessandro Beber & Michael W. Brandt, 2008. "Resolving Macroeconomic Uncertainty in Stock and Bond Markets," Review of Finance, Oxford University Press for European Finance Association, vol. 13(1), pages 1-45.

Users who downloaded this paper also downloaded these:
Cutler, Poterba, and Summers w2538 What Moves Stock Prices?
Diebold and Yilmaz w14269 Macroeconomic Volatility and Stock Market Volatility, Worldwide
Gurkaynak and Wolfers Macroeconomic Derivatives: An Initial Analysis of Market-Based Macro Forecasts, Uncertainty, and Risk
Beber, Brandt, and Kavajecz w12376 Flight-to-Quality or Flight-to-Liquidity? Evidence From the Euro-Area Bond Market
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us