ECCE Webinar: The Impact of Uncertainty in the Oil and Gold Market on the Cross-Section of Stock Ret

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EVENT DATE: 27-05-15 | Webinar |

Authors:
Dennis Bams (Maastricht University)
Gildas Blanchard (Maastricht University)
Iman Honarvar (Maastricht University)
Thorsten Lehnert (University of Luxembourg)

Presenter: Iman Honarvar

We find that uncertainty in the oil and gold market affects the cross-section of stock returns. We compare and benchmark the role of these alternative asset market uncertainties vis à vis the more traditional equity market uncertainty. Inspired by recent empirical evidence, uncertainty in those asset markets is proxied by the variance risk premia derived from futures and options traded on the S&P500, oil and gold. We find evidence of both systematic and asset-specific uncertainty. We document a negative relationship between the various types of uncertainty and firm’s stock returns. An independent increase in S&P, oil and gold market uncertainty coincides with lower returns for an important proportion of the stock universe. On the opposite, we show that only S&P uncertainty is a market-wide priced factor in the cross-section of expected stock returns. The other uncertainty factors are sector-specific and are only priced within certain industries. Market industry segmentation explains why a specific factor such as oil uncertainty is only priced for a subset of the stocks.

Date: 27 May 2015

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