Working Paper
Risk, uncertainty, and expected returns
Bali, Turan G.; Zhou, Hao (2011)
A consumption-based asset pricing model with risk and uncertainty implies that the time-varying exposures of equity portfolios to the market and uncertainty factors carry positive risk premiums. The empirical results from the size, book-to-market, and industry portfolios as well as individual stocks indicate that the conditional covariances of equity portfolios (individual stocks) with market and uncertainty predict the time series and cross-sectional variation in stock returns. We find that equity portfolios that are highly correlated with economic uncertainty proxied by the variance risk ...
Finance and Economics Discussion Series , Paper 2011-45