Volatility, the Macroeconomy, and Asset Prices

Ravi Bansal, Dana Kiku, Ivan Shaliastovich, Amir Yaron

Research output: Contribution to journalArticlepeer-review


How important are volatility fluctuations for asset prices and the macroeconomy? We find that an increase in macroeconomic volatility is associated with an increase in discount rates and a decline in consumption. We develop a framework in which cash flow, discount rate, and volatility risks determine risk premia and show that volatility plays a significant role in explaining the joint dynamics of returns to human capital and equity. Volatility risk carries a sizable positive risk premium and helps account for the cross section of expected returns. Our evidence demonstrates that volatility is important for understanding expected returns and macroeconomic fluctuations.

Original languageEnglish (US)
Pages (from-to)2471-2511
Number of pages41
JournalJournal of Finance
Issue number6
StatePublished - Dec 1 2014
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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