Ian Dew-Becker

Ian Dew-Becker

Northwestern University, Kellogg School of Management
Email: see my address at my Kellogg website

Ian Dew-Becker

Working papers:

Cross-sectional uncertainty and the business cycle: Evidence from 40 years of options data With Stefano Giglio.

We use options on individual stocks to construct a measure of cross-sectional (as opposed to aggregate) uncertainty back to 1980. The index is much less variable than aggregate uncertainty, it is acyclical and it does not forecast aggregate output, all of which are inconsistent with recent models emphasizing the importance of uncertainty shocks. The results imply firm-level uncertainty is not a major "headwind" policymakers should worry about.


Macro skewness and conditional second moments: evidence and theories With Alirez Tahbaz-Salehi and Andrea Vedolin.

We establish four empirical facts or regularities:
1. Economic activity is skewed left in both levels and growth rates
2. Skewness is greater at the aggregate than the sector level
3. The cross-sectional volatility of sector growth rates is countercyclical
4. Sectors become more central following negative shocks
Those facts are naturally generated in a production network that features complementarity across inputs. Three leading alternative models -- skewed aggregate shocks, concave decision rules, and fixed adjustment costs with uncertainty shocks -- fail to match all four facts.

Hedging macroeconomic and financial uncertainty and volatility With Bryan Kelly and Stefano Giglio.

  • Archive with returns on straddles for each market plus at-the-money IVs

We construct option portfolios that directly hedge uncertainty about the macroeconomy, as opposed to the financial sector (e.g. the VIX). Those portfolios historically earn positive average returns, which is inconsistent with the view that uncertainty shocks are "bad" in the sense of being associated with high marginal utility.

Layoff risk, the welfare cost of business cycles, and monetary policy With David Berger, Lawrence D.W. Schmidt, and Yuta Takahashi.

In a model in which layoffs lead to permanent and uninsurable declines in income, optimal monetary policy should respond to fluctuations in the layoff rate. Policy can increase welfare by 1 percent of lifetime consumption. Empirically, the Fed Funds rate has historically been strongly correlated with layoffs.


Uncertainty and volatility

Uncertainty shocks as second-moment news shocks With David Berger and Stefano Giglio. Forthcoming, Review of Economic Studies.

  • Replication files
  • Data for replicating just the main VAR
  • Data on monthly S&P 500 implied volatility (VIX) extended to 1983 (daily is available on request)

Uncertainty shocks can be identified as news about second moments. Our identified uncertainty shocks are not associated with recessions. The realization of volatility, however, as opposed to its expectation, is.

The price of variance risk With Stefano Giglio, Anh Le, and Marius Rodriguez. Journal of Financial Economics, 2017, 123(2), pp. 225–250. Lead article.

The only significantly priced risk in the variance market over the period 1996–2014 was transitory realized variance. News about future variance was unpriced, suggesting it is not an important driver of the real economy. The results allow us to distinguish among consumption-based models.

Information and investment across frequencies

On the effects of restricting short-term investment With Nicolas Crouzet and Charles G. Nathanson. Review of Financial Studies, 2019, 33(1), pp. 1–43. Lead article and editor's choice.

We analyze restrictions on short-term investment in a noisy rational expectations model of a futures market. In our simple frictionless setting, the restriction has zero effect on the information content of prices at lower frequencies. While the entrance of high-frequency investors hurts those who invest at lower frequencies, restricting high-frequency investment does not restore the old equilibrium – in fact it makes the situation even worse.

Directed Attention and Nonparametric Learning With Charles G. Nathanson. Journal of Economic Theory, 2019, 181, pp. 461–496.

Allowing people to choose what aspect of income dynamics (i.e. what autocovariances) to learn about has important effects for consumption. Generates excess sensitivity to transitory shocks but consumption growth that is white noise in the long run. People's approximate models for income are most likely to be accurate at low frequencies.

Long-run risk is the worst-case scenario With Rhys Bidder. American Economic Review, 2016, 106(9), pp. 2494–2527.

The long-run risk model (a small, persistent component in consumption growth) is the natural model for investors to use for asset pricing if they are unsure of the true dynamics of the economy.

Asset pricing in the frequency domain: theory and empirics With Stefano Giglio. Review of Financial Studies, 2016, 29(8), pp. 2029–2068. Slides

The price of risk for a shock depends on its dynamic effects on the economy. We derive the relationship between risk prices and dynamic impacts in a range of theoretical models and also estimate it empirically.

How risky is consumption in the long-run? Benchmark estimates from a robust estimator. Review of Financial Studies, 2017, 30(2), pp. 631–666. Slides

I develop a new long-run variance estimator and use it to estimate the long-run variance of consumption growth. Point estimates are lower than standard long-run risks calibrations, but the more conservative calibrations cannot be ruled out. The estimates are useful more generally for calibrating models with recursive preferences.

Business cycles

Bond Pricing with a Time-Varying Price of Risk in an Estimated Medium-Scale Bayesian DSGE Model Journal of Money, Credit, and Banking, 2014, 46(5), pp. 837–888. Lead article.

A New-Keynesian model with time-varying risk aversion can fit bond yields nearly as well as an unrestricted three-factor model. Including bond prices in the estimation makes investment technology shocks look much less important.

Unresolved Issues in the Rise of American Inequality (with R.J. Gordon). Brookings Papers on Economic Activity 38(2), Fall 2007.

Where Did the Productivity Go? Inflation Dynamics and the Distribution of Income (with R.J. Gordon). Brookings Papers on Economic Activity 36(2), 2005, pp. 67–127. Slides

Older Unpublished Papers:

A Model of Time-Varying Risk Premia with Habits and Production.

I combine Epstein–Zin preferences with habit formation. With production, the model generates a large and volatile equity premium.

Essentially Affine Approximations for Economic Models

First-order approximations related to perturbation that allow for time-varying risk aversion and volatility. Useful for macro-finance models.

Replication files

The Role of Labor Market Changes in the Post-1995 Slowdown in European Productivity Growth (with R.J. Gordon). Draft of 12.2007.

  • Slides
  • Vox EU column summarizing this paper
  • Titles of earlier drafts:
            "Why Did Europe's Productivity Catch-up Sputter Out? A Tale of Tigers and Tortoises"
            "The Slowdown in European Productivity Growth: A Tale of Tigers, Tortoises and Textbook Labor Economics"

Data sets and replication files:

Aggregate and cross-sectional uncertainty from "Cross-sectional uncertainty and the business cycle: Evidence from 40 years of options data"

The files contain historical data for option implied volatility for the S&P 500, averaged across firms (weighted by market capitalization), and the measure of cross-sectional or firm-specific implied volatility described in the paper.
Version date: 8/10/2020

  • US firm uncertainty:
  • European firm uncertainty:

Returns on straddles in 19 financial and commodity option markets from "Hedging macroeconomic and financial uncertainty and volatility"

The file contains two-week returns on delta-neutral straddles as decribed in the paper. Monthly at-the-money implied volatilities for the markets are also included

S&P 500 VIX extended back to 1983; from "Uncertainty shocks as second-moment news shocks"

The file contains monthly data for one- and six-month implied volatilities, calculated using the VIX-type formula, for 1983–2014. Daily data is available on request.

Variance swap prices from "The price of variance risk"

The file contains monthly prices for S&P 500 variance swaps for 12/1995–9/2013

Asset pricing in the frequency domain: Theory and empirics (VoxEU.org column with Stefano Giglio). 10.20.2013

Stabilisation policy should focus on the frequencies consumers care most about. This column presents evidence from stock-market returns suggesting that consumers are willing to pay the most to avoid – and are therefore most concerned about – fluctuations that last tens or hundreds of years. Modern macroeconomic theory tends to view the role of monetary policy as smoothing out inflation and unemployment over the business cycle. The authors' findings suggest that resources would be better spent on policies that smooth out longer-run fluctuations.

How Much Sunlight Does it Take to Disinfect a Boardroom? A Short History of Executive Compensation Regulation in America CESifo Economic Studies 55(3-4), 2009, pp. 434-457

I review the history of executive compensation disclosure and other government policies affecting CEO pay. In so doing, I also review the literature on the effects of these policies. Disclosure has increased nearly uniformly since 1933. A number of other regulations, including special taxes on CEO pay and rules regarding votes on some pay packages have also been introduced, particularly in the last 20 years. However, there is little solid evidence that any of these policies have had any substantial impact on pay. We can conclude that policy changes have helped drive the move towards more use of stock options, but there is no conclusive evidence on how policy has affected the level or composition of pay otherwise. I also review evidence from overseas on "Say on Pay," recently proposed in the US, which would allow nonbinding shareholder votes on CEO compensation. The experiences of other countries have been positive, with tighter linkages between pay and performance and improved communication with investors. Mandatory say on pay would be beneficial in the US.

The rise in American inequality (with R.J. Gordon). 6.19.2008

Only the top 10% of US earners have seen their incomes grow faster than productivity since 1966. Part of the top-earner income growth is driven by market forces (superstar economics); the only feasible pro-equality policy here is more progressive taxation. For top corporate executives, however, non-market forces (CEO-Board complicity in pay setting) are important, so other policies are warranted. Increased disclosure and improved corporate governance would distribute economic gains more evenly across society and boost firms' value.

Europe's employment growth revived after 1995 while productivity growth slowed: Is it a coincidence? (with R.J. Gordon). 4.15.2008

Europe's jobs outlook has brightened over the past decade. Recent research suggests that about half the rise in job creation is due to labour market reforms, but much of the rest is due to changing social norms concerning female and immigrant labour force participation. But what's good for European job creation seems to be bad for labour productivity growth – a trade-off that European policymakers must be willing to acknowledge and address.