Macroeconomic uncertainty and its term structure

, University of 黑料传送门 Booth

, University of 黑料传送门 Booth

The purpose of this project is to study the term structure of implied volatility (uncertainty) at different horizons for a wide variety of macroeconomic and financial derivatives. Understanding the role that uncertainty shocks play in macroeconomics and finance has been at the center of a large recent literature; the proposed projects introduce new evidence using novel asset pricing data. Key to the project is the ability to study the cross-sectional dimension of uncertainty (about different components of the macroeconomy) as well as the term-structure dimension, by exploiting the availability of information at different horizons. What enables us to explore both dimensions is the new data obtained from the CME using previous Fama-Miller funding, that includes the prices of options and futures of products traded at the CME (and in related exchanges, like the CBOT or NYMEX). The project sits at the intersection of several research agendas that have been carried forward by the two authors. In particular, it links to research on the pricing of the term structure S&P 500 variance swaps explored in Dew-Becker et al. (2016); the study of macroeconomic effects of volatility shocks (again using S&P 500 volatility) of Berger et al. (2016); the study of volatility across many term structures in Giglio and Kelly (2016); as well as work on political uncertainty and on idiosyncratic uncertainty of Kelly et al. (2016) and Herskovic et al. (2015). The dataset obtained from the CME contains previously unavailable data on futures and options, but requires careful and extensive cleaning. The purpose of this grant request is to fund research assistance to perform this data cleaning and preparation.