Dispersion of beliefs, ambiguity, and the cross-section of stock returns

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We examine whether ambiguity is priced in the cross-section of expected stock returns. Using the cross-sectional dispersion in real-time forecasts of real GDP growth as a measure for ambiguity, we find that high ambiguity beta stocks earn lower future returns relative to low ambiguity beta stocks. This negative predictive relation between the ambiguity beta and future returns is consistent with theory, which predicts the marginal utility of consumption to rise when ambiguity is high. We further show that the ambiguity premium remains significant after controlling for exposures to expected real GDP growth, VIX, and financial market dislocations index.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2019-01
Language
English
Article Type
Article
Citation

JOURNAL OF EMPIRICAL FINANCE, v.50, pp.43 - 56

ISSN
0927-5398
DOI
10.1016/j.jempfin.2019.01.001
URI
http://hdl.handle.net/10203/254158
Appears in Collection
MT-Journal Papers(저널논문)
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