Date of this Version
The Journal of Finance
How important are volatility fluctuations for asset prices and the macroeconomy? We find that an increase in macroeconomic volatility is associated with an increase in discount rates and a decline in consumption. We develop a framework in which cash flow, discount rate, and volatility risks determine risk premia and show that volatility plays a significant role in explaining the joint dynamics of returns to human capital and equity. Volatility risk carries a sizable positive risk premium and helps account for the cross section of expected returns. Our evidence demonstrates that volatility is important for understanding expected returns and macroeconomic fluctuations.
This is the peer reviewed version of the following article: BANSAL, R., KIKU, D., SHALIASTOVICH, I. and YARON, A. (2014), Volatility, the Macroeconomy, and Asset Prices. The Journal of Finance, 69: 2471–2511. doi:10.1111/jofi.12110, which has been published in final form at http://dx.doi.org/10.1111/jofi.12110. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms
Bansal, R., Kiku, D., Shaliastovich, I., & Yaron, A. (2014). Volatility, the Macroeconomy, and Asset Prices. The Journal of Finance, 69 (6), 2471-2511. http://dx.doi.org/10.1111/jofi.12110
Date Posted: 27 November 2017
This document has been peer reviewed.