Measuring Macroeconomic Tail Risk

72 Pages Posted: 2 May 2016 Last revised: 19 Oct 2020

See all articles by Roberto Marfè

Roberto Marfè

University of Turin - Collegio Carlo Alberto

Julien Pénasse

University of Luxembourg

Date Written: October 13, 2020


This paper proposes a predictive approach to estimate macroeconomic tail risk dynamics over the long run (1876-2015). Our approach circumvents the scarcity of large macroeconomic crises by using observable predictive variables in a large international panel. This method does not require to use asset price information, which allows us to evaluate the empirical validity of rare disasters models. Our macro risk estimates covary with asset prices and forecasts future stock returns, in line with the prediction that macroeconomic tail risk drives the equity premium. A rare disaster model, calibrated from macroeconomic data alone, further supports this interpretation.

Keywords: Rare disasters, equity premium, return predictability

JEL Classification: E44, G12, G17

Suggested Citation

Marfè, Roberto and Pénasse, Julien, Measuring Macroeconomic Tail Risk (October 13, 2020). Paris December 2017 Finance Meeting EUROFIDAI - AFFI, Available at SSRN: or

Roberto Marfè

University of Turin - Collegio Carlo Alberto ( email )

Piazza Arbarello 8
Torino, Torino 10122

Julien Pénasse (Contact Author)

University of Luxembourg ( email )

4 Rue Albert Borschette
Luxembourg, L-1246

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