A dynamic factor model with endogenous stochastic volatility shows that common macroeconomic factors with shifting volatility, combined with heterogeneous sector exposures, explain over half of the cross-sectional variation in asymmetric tail risk across 116 U.S. variables.
Journal of Business & Economic Statistics , volume =
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Risk in a Data-Rich Model
A dynamic factor model with endogenous stochastic volatility shows that common macroeconomic factors with shifting volatility, combined with heterogeneous sector exposures, explain over half of the cross-sectional variation in asymmetric tail risk across 116 U.S. variables.