Abstract
This paper introduces a new measure for global macroeconomic uncertainty that captures both upside and downside risks using a no-arbitrage asset pricing framework. The study uses a dynamic panel threshold model to analyze quarterly data from 20 countries between 1996 and 2020, incorporating macroeconomic and financial market variables, as well as risk aversion factors. The findings reveal a significant nonlinear effect of global uncertainty on stock risk premiums. High global uncertainty increases the premium investors require for global market risks but decreases it for local market risks. The study also indicates that during uncertain times, investors display risk-averse and liquidity-seeking behavior, opting for safer and more liquid assets. The impact of global macroeconomic uncertainty on stock risk premiums is found to be long-lasting.
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