Essays on Risk Uncertainty in Economics and Finance

por Uribe Gil, Jorge M.
Essays on Risk Uncertainty in Economics and Finance
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ISBN: 978-84-17888-75-6
Editorial: Universidad de Cantabria
Fecha de la edición: 2022
idioma: Ingles
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Nº Pág.: 207

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Resumen del libro

Reseña: This book adds to the resolution of two problems in finance and economics: i) what is macro-financial uncertainty?: How to measure it? How is it different from risk? How important is it for the financial markets? And ii) what sort of asymmetries underlie financial risk and uncertainty propagation across the global financial markets? That is, how risk and uncertainty change according to factors such as market states or market participants. In Chapter 2, which is entitled ?Momentum Uncertainties?, the relationship between macroeconomic uncertainty and the abnormal returns of a momentum trading strategy in the stock market is studies. We show that high levels of uncertainty in the economy impact negatively and significantly the returns of a portfolio of stocks that consist of buying past winners and selling past losers. High uncertainty reduces below zero the abnormal returns of momentum, extinguishes the Sharpe ratio of the momentum strategy, while increases the probability of momentum crashes both by increasing the skewness and the kurtosis of the momentum return distribution. Uncertainty acts as an economic regime that underlies abrupt changes over time of the returns generated by momentum strategies.
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