We find that the difference between implied and realized variances,
or the variance risk premium, is able to explain more than fifteen
percent of the ex-post time series variation in quarterly excess
returns on the market portfolio over the 1990 to 2005 sample
period, with high (low) premia predicting high (low) future
returns. The magnitude of the return predictability of the variance
risk premium easily dominates that afforded by standard predictor
variables like the P/E ratio, the dividend yield, the default
spread, and the consumption-wealth ratio (CAY). Moreover, combining
the variance risk premium with the P/E ratio results in an R
DEGREES2 for the quarterly returns of more than twenty-five
percent. The results depend crucially on the use of "model-free,"
as opposed to standard Black-Scholes, implied variances, and
realized variances constructed from high-frequency intraday, as
opposed to daily, data. Our findings suggest that temporal
variation in risk and risk-aversion both play an important role in
determining stock market returns.
General
Imprint: |
Bibliogov
|
Country of origin: |
United States |
Release date: |
February 2013 |
First published: |
February 2013 |
Authors: |
Tim Bollerslev
|
Dimensions: |
246 x 189 x 2mm (L x W x T) |
Format: |
Paperback - Trade
|
Pages: |
36 |
ISBN-13: |
978-1-288-70885-7 |
Categories: |
Books >
Social sciences >
Politics & government >
General
|
LSN: |
1-288-70885-8 |
Barcode: |
9781288708857 |
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