@article{jfe20251333,
author={{Adjei, Frederick and Adjei, Mavis},
title={Market Ambiguity and Returns},
journal={Journal of Finance and Economics},
volume={13},
number={3},
pages={101--111},
year={2025},
url={https://pubs.sciepub.com/jfe/13/3/3},
issn={2328-7276},
abstract={Using a GARCH-M model, we examine the effect of the <i>level of ambiguity </i>in the stock market on the conditional mean of market returns. Additionally, we investigate the predictive power of the <i>level of ambiguity </i>expected market returns. The results of the GARCH-M estimation indicate the presence of GARCH effects and show a positive risk-return tradeoff. Second, we find that the <i>level of ambiguity</i>, although orthogonal to risk, is correlated with market returns. On dividing our study period into expansion and recession subperiods, we find that there is an inverse relationship between the <i>level of ambiguity</i> and contemporaneous market returns only during recessions. Finally, the results of the forecast models indicate that the <i>level of ambiguity </i>is a strong predictor of future market returns. Specifically, our findings offer the first definite evidence of a positive relationship between the <i>level of ambiguity</i> and future market returns.},
doi={10.12691/jfe-13-3-3}
publisher={Science and Education Publishing}
}