Recent Developments in Financial Risk and the Real Economy

In this article, we review recent developments in macroeconomics and finance on the relationship between financial risk and the real economy. We focus on three specific topics: ( a ) the term structure of uncertainty, ( b ) time variation—specifically, the long-term decline—in the variance risk prem...

Full description

Saved in:
Bibliographic Details
Published in:Annual review of financial economics 2024-11, Vol.16 (1), p.39-60
Main Authors: Dew-Becker, Ian, Giglio, Stefano
Format: Article
Language:English
Subjects:
business cycle
cliquets
grains
implied volatility
JEL D81
JEL E23
JEL E24
JEL E32
JEL G12
JEL G13
options
real economy
skewness
term structure
uncertainty
variance risk premium
Citations: Items that this one cites
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:In this article, we review recent developments in macroeconomics and finance on the relationship between financial risk and the real economy. We focus on three specific topics: ( a ) the term structure of uncertainty, ( b ) time variation—specifically, the long-term decline—in the variance risk premium, and ( c ) time variation in conditional skewness. We also introduce two new data series: implied volatility from one-day options on grains for the period 1906–1936 and prices of cliquet options, which provide insurance against single-day crashes on the S&P 500. Both series give some context to the recent rise in trade in extremely short-dated options. Finally, we discuss new avenues for future research.
ISSN:1941-1367
1941-1375
DOI:10.1146/annurev-financial-082123-105456