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Uncertainty Trends


Finance, Finance

Publishing details

Social Sciences Research Network

Authors / Editors

Bandi F M;Bretscher L;Tamoni A

Publication Year



Even after being orthogonalized with respect to the dividend-price ratio, the volatility of total factor productivity (TFP volatility) is shown to have similar long-run predictive ability for excess market returns as the dividend-price ratio itself. When seen through an asset pricing lens, this finding implies that TFP volatility should also predict real cash flows and/or real interest rates: it is found to mainly predict real cash flows through inflation rates. A model with endogenous growth, Epstein-Zin preferences and nominal price rigidities is shown to reconcile both uncertainty-driven long-run predictability and its real implications. Relying on the model, we justify why alternative notions of uncertainty (like market variance or economic policy uncertainty) have the same predictive ability as TFP volatility provided their priced low-frequency signal is extracted.


uncertainty trends; valuation ratios; endogenous growth; price rigidities; financial uncertainty


Social Sciences Research Network

Available on ECCH


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