A Study On Economic Uncertainty Asset Pricing

With the development of economic globalization and network information technology,the impact of various emergencies on the global economy has intensified.As an important macro indicator to measure the overall economic fluctuation,economic uncertainty plays an increasingly important role in economic and financial markets.The impact of economic uncertainty on financial assets has become a research hotspot in the field of asset pricing.The relationship between risk and return has always been one of the most central topics in asset pricing research.Based on investors’ aversion to uncertainty,economic uncertainty has a significant impact on systemic risk,which in turn becomes an important factor in determining the return of risky assets.But economic uncertainty as a pricing factor,its theoretical explanation and empirical test are not perfect in existing research,and its relationship with market anomalies is not clear.In order to further explore the role of economic uncertainty in asset pricing,this paper studies the pricing effect of systemic risk represented by economic uncertainty,a macroeconomic indicator,in the stock market.This paper studies asset pricing from the perspective of economic uncertainty,specifically the pricing power of economic uncertainty in the stock market.The discussion is divided into three parts,the first part is the research on cross-section pricing of economic uncertainty,the second part is the research on economic uncertainty pricing and market anomaly,and the third part is the research on spectral pricing of economic uncertainty.The main research contents of this paper are as follows:(1)In the research on cross-section pricing of economic uncertainty,starting from the consumption-based asset pricing model(CCAPM),it is proposed that economic uncertainty enters the pricing core by affecting the marginal utility of investors,causing the significant pricing effect of economic uncertainty.The cross-sectional pricing effect comes from investors’ time-varying risk appetite.Next,using seven types of proxy indicators of economic uncertainty in the existing literature and a comprehensive indicator constructed by principal component analysis in this paper,a total of eight proxy indicators are used as empirical measures of economic uncertainty.Then,test the CCAPM theoretical expectations of economic uncertainty pricing on a empirical level.Firstly,empirically verify the cross-sectional pricing power of economic uncertainty.At the portfolio level,the factor simulation portfolio method and the group sorting method are used,and at the individual stock level,the Fama Macbeth two-step method is used to empirically test the cross-sectional pricing effect of economic uncertainty,and it is found that all proxy indicators have a significant negative cross-sectional pricing effect.which verifies the significant and stable pricing power of economic uncertainty.Secondly,we test the explanatory power of risk aversion to the crosssectional pricing effect of economic uncertainty,and find that risk aversion can significantly explain the cross-sectional premium of economic uncertainty in both time series and cross-sectional perspectives,which is consistent with the theoretical expectation that investors’time-varying preference is of great importance in the pricing of economic uncertainty.Based on the research framework of the US stock market,the same empirical test was conducted in the Chinese stock market,and it was found that the absolute value of the economic uncertainty risk exposure in the Chinese market was significantly negative,while there is no significant pricing effect on the raw uncertainty risk exposure itself.Finally,in order to explain the difference in the cross-sectional pricing effect of economic uncertainty between China and the United States,we use risk aversion and market sentiment indexes to decompose the cross-sectional pricing effect and divide the sample period.It is found that the significant pricing effect in the Chinese stock market is mainly driven by market sentiment,and the significant pricing effect in the U.S.stock market is driven by both real economic factors and emotional factors,of which the real economy is the main driver,indicating that U.S.stock investors are more likely to make rational investment decisions about economic uncertainty and the market sentiment factor in Chinese stock market cannot be omitted.(2)Research on economic uncertainty pricing and market anomalies,based on the significance and stability of the economic uncertainty cross-sectional pricing effect,the macro-level economic uncertainty cross-sectional pricing effect representing generalized risk,which can be regarded as the systematic risk.Because uncertainty loosened the known assumptions about probability distribution in the definition of traditional risk,the pricing effect of economic uncertainty on the cross-section can explain the market anomalies that the traditional risk cannot explain.Specifically,this paper finds that economic uncertainty has significant explanatory power on both the idiosyncratic volatility anomaly(IVOL)and the maximum return preference anomaly(MAX)in both time series and cross-section perspectives.Empirically proved that the cross-sectional pricing power of economic uncertainty has the property of systematic risk and can explain a series of anomalies.(3)In the study of spectral pricing of economic uncertainty,the effectiveness of spectral pricing of economic uncertainty is tested from the perspective of cross-section and time series.On the cross section,based on the existence of counter-cyclical fluctuation characteristics of economic uncertainty,this paper uses the spectral factor pricing model proposed by Bandi,Chaudhuri et al.(2021)to conduct spectral pricing research on economic uncertainty,and finds that economic uncertainty is only significantly priced in the specific economic cycle frequency with the frequency length of 32-128 months,and the pricing effect is not significant in longer or shorter fluctuation cycles.In terms of time series,in order to verify whether the significant cross-sectional premium that economic uncertainty has in economic cycle frequency is derived by the Intertemporal Capital Asset Pricing Model(ICAPM),this paper analyzes whether economic uncertainty is an effective ICAPM state variable.The empirical results show that economic uncertainty has no significant predictive power on the future investment opportunity set on a monthly basis,but it can positively predict the future investment opportunity set on a longer-term economic cycle spectral(32-128 months).However,due to the fact that the cross-sectional pricing power of economic uncertainty on economic-cycle frequency is significantly negative and the predictive power of economic uncertainty on future investment opportunity set on economic-cycle frequency is significantly positive,which does not meet the theoretical expectations of ICAPM.Accordingly,economic uncertainty is not an effective ICAPM state variable,and ICAPM theory cannot be used as a theoretical support for.the significant pricing power of economic uncertainty.