What does this research mean for the field?

Model-implied macroeconomic risk factors, encompassing both internal and external shocks derived from a DSGE model, are significantly priced and enhance the explanatory power of the Fama-French six-factor model for stock returns. Novelty: ClaimNovelty.INCREMENTAL. Consensus alignment: ConsensusAlignment.NEUTRAL.

What question did this study set out to answer?

To examine the relationship between model-derived macroeconomic risk premia and empirical asset-pricing factors using an open economy dynamic stochastic general equilibrium framework.

September 14, 2026Review of International Economics

Macro Risk Premia and Stock Returns: An Open Economy Dynamic Stochastic General Equilibrium Approach

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Authors

PFPenglu FuCAS Key Laboratory of Urban Pollutant Conversion ZQZongxin QianRenmin University of China YWYou WuJilian Technology Group (China)

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Implication

Econometric modeling reveals that macroeconomic shocks drive risk premia in stock returns, highlighting the critical role of open economy linkages in asset pricing.

Key Points

To examine the relationship between model-derived macroeconomic risk premia and empirical asset-pricing factors using an open economy dynamic stochastic general equilibrium framework.
Estimated internal and external macroeconomic shocks using a standard open economy dynamic stochastic general equilibrium (DSGE) model.
Augmented the empirical Fama–French six-factor model with the model-implied macroeconomic risk factors to evaluate asset-pricing performance.
Macroeconomic shocks are significantly priced, with their associated premia explaining substantial variation across standard asset-pricing factors.
Augmenting the Fama–French six-factor model with model-implied risk factors enhances pricing performance, although residual pricing errors remain.
Premia derived from both domestic and foreign shocks demonstrate significant explanatory power, confirming the relevance of cross-border economic linkages.

Cite This Study

Fu et al. (2026) studied this question.

synapsesocial.com/papers/6aa7b3aa0926e14a848b2c80 https://doi.org/10.1111/roie.70089

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Implication

Econometric modeling reveals that macroeconomic shocks drive risk premia in stock returns, highlighting the critical role of open economy linkages in asset pricing.

Macro Risk Premia and Stock Returns: An Open Economy Dynamic Stochastic General Equilibrium Approach

Discussion

Member takes

Implication

Key Points

Cite This Study

Macro Risk Premia and Stock Returns: An Open Economy Dynamic Stochastic General Equilibrium Approach

Discussion

Member takes

Implication

Key Points

Cite This Study

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