Uncertainty Shocks as Second-Moment News Shocks

David Berger, Ian Dew-Becker, Stefano Giglio

Research output: Contribution to journalArticlepeer-review

33 Scopus citations


First version received April 2018; Editorial decision January 2019; Accepted February 2019 (Eds.) We provide evidence on the relationship between aggregate uncertainty and the macroeconomy. Identifying uncertainty shocks using methods from the news shocks literature, the analysis finds that innovations in realized stock market volatility are robustly followed by contractions, while shocks to forward-looking uncertainty have no significant effect on the economy. Moreover, investors have historically paid large premia to hedge shocks to realized but not implied volatility. A model in which fundamental shocks are skewed left can match those facts. Aggregate volatility matters, but it is the realization of volatility, rather than uncertainty about the future, that has been associated with declines.

Original languageEnglish (US)
Pages (from-to)40-76
Number of pages37
JournalReview of Economic Studies
Issue number1
StatePublished - 2020


  • Business cycles
  • Uncertainty
  • Volatility

ASJC Scopus subject areas

  • Economics and Econometrics


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