Does macro uncertainty affect stock markets?

Abstract

This thesis concerns the topic of uncertainty and its application to economics. Uncertainty is a situation which involves imperfect and/or lack of information necessary for the prediction of future events. In this study, we are in particular concerned with macroeconomic uncertainty and it’s relation to the stock price variations in the US financial markets. Our results indicate that the macroeconomic uncertainty is dependent on the stock market’s interpretation of macroeconomic news. We also find that macro uncertainty is positively related to the volume of trade and the stock price volatility. It is suggested that an aggregate measure of cross-sectional analyst dispersion, could serve as a proxy for macro uncertainty.