| Popis: |
We examine the informational efficiency of market ambiguity in predicting market excess returns and the equity premium internationally. Empirical results show a strong predictive ability of option-implied, and sentiment-based, ambiguity for U.S. stock market returns for up to three years. We also provide evidence of return predictability in eight other countries. Proxying for dispersion in ambiguity beliefs, our measures provide information in addition to standard return predictors and recent economic uncertainty indicators. We document a negative relation between ambiguity and the equity premium in line with limited market participation theory (Cao,-Wang-and-Zhang,-2005), and confirm a positive intertemporal risk-return trade-off after controlling for ambiguity. |
