Micro Uncertainty and Asset Prices
Journal
Journal of Financial Economics
Subject
Finance
Publishing details
Authors / Editors
Herskovic B;Kind T;Kung H
Biographies
Publication Year
2023
Abstract
Size and value premia comove strongly with one another at low frequencies, but they are both negatively related to long-run movements in the equity premium. We explain these patterns in an investment-based asset pricing model featuring persistent micro and macro uncertainty. Micro uncertainty generates size and value premia waves, while macroeconomic uncertainty produces equity premium waves. The negative correlation between micro and macro uncertainty at low frequencies explains why the equity premium is a long-term hedge for size and value premia. Persistent micro uncertainty is also a source of instability for size and value factors in short samples.
Available on ECCH
No
