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Bloom (2009) analyzes the impact of uncertainty shocks, and Bloom et al (2014) propose a business cycle model based on these shocks.
It seems to be a young field, but is there any consensus on strength and weaknesses of this new shock? Is it the answer to some puzzles such as the risk premium puzzle?
What is the opinion of the literature about this field, and is there already a handbook chapter on this?
Macroeconomic Uncertainty and Expected Stock Returns is a recent paper (Bali, Brown, and Tang (2015)) finds an economically important effect on uncertainty on returns.
This paper introduces a broad index of macroeconomic uncertainty based on ex-ante measures of cross-sectional dispersion in economic forecasts by the Survey of Professional Forecasters. We estimate individual stock exposure to a newly proposed measure of economic uncertainty index and find that the resulting uncertainty beta predicts a significant proportion of the cross-sectional dispersion in stock returns. After controlling for a large set of stock characteristics and risk factors, we find the predicted negative relation between uncertainty beta and future stock returns remains economically and statistically significant. The significantly negative uncertainty premium is robust to alternative measures of uncertainty index and distinct from the negative market volatility risk premium identified by earlier studies.
Dynamic co-movements of stock market returns, implied volatility and policy uncertainty (Antonakakisa, Chatziantonioua, and Filisb (2013)) finds that policy uncertainty, as measured by Baker, Bloom, and Davis (2013), has an unconditional correlation with the Vix of about 0.43. But using a DCC_Garch they find episodes when this correlation was negative, which may be surprising.
