I develop a dynamic production-based network model to examine the economic and asset pricing implications of inter-sector idiosyncratic volatility spillovers. I introduce two time-series factors to capture the evolving dynamics of pairwise idiosyncratic volatility spillovers and show that they shape the persistent dynamics of aggregate volatility in equilibrium and are priced as volatility risk factors. Empirically, I construct these factors using stock data and demonstrate that they predict future aggregate volatility in the direction implied by the model. Furthermore, long-short portfolios formed based on these factors generate return spreads that are unexplained by existing factor models.

We identify choke point industries in global production networks as strategic nodes bridging the flows across global value chains. We find that they tend to be in countries with deep seaports, better educated labor force, and more developed capital markets, and be industries relatively upstream in the value chains. Following China’s accession to the WTO, many choke points migrated from the US to China, shifting the topology of global production networks. Using the blockage of the Red Sea by the Houthis as a natural experiment, we find evidence of negative shocks propagating throughout global production networks via the important choke points—water transportation industries. In global stock markets, firms in the choke point industries earn higher stock returns than their peripheral peers by more than 6% per year.

We develop a novel framework that sharply identifies the shocks common to financial markets and the macroeconomy, their propagation across horizons, and the term structure of macro risk premia. We find that macro factors' risk premia are strongly time-varying and countercyclical, with sharply increasing unconditional term structures. Macro risk premia are small and negligible in the short run, yet grow to match the magnitude of equity risk premia at the business cycle horizon—in a nutshell, we reconnect macro to finance. As we show, this pattern is driven by the slow propagation of almost interchangeable priced shocks that capture most of the persistence in macroeconomic variables. Crucially, it is not mechanically due to factor persistence: while GDP, consumption, industrial production, hours worked, and employment exhibit upward-sloping term structures, other similarly persistent factors—such as the VIX or intermediary-based variables—display downward-sloping or flat ones.