The Term Structure of Systematic and Idiosyncratic Risk

Fabian Hollstein, Marcel Prokopczuk () and Chardin Wese Simen

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: We study the term structure of variance (total risk), systematic and idiosyncratic risk. Consistent with the expectations hypothesis, we find that, for the entire market, the slope of the term structure of variance is mainly informative about the path of future variance. Thus, there is little indication of a time-varying term premium. Turning the focus to individual stocks, we cannot reject the expectations hypothesis for the systematic variance, but we strongly reject it for idiosyncratic variance. Our results are robust to jumps and potential statistical biases.

Keywords: options; term structure; expectations hypothesis; model-free option implied variance; implied correlation; systematic risk; beta; idiosyncratic variance (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2017-11
New Economics Papers: this item is included in nep-rmg
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http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-618.pdf (application/pdf)

Related works:
Journal Article: The term structure of systematic and idiosyncratic risk (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:han:dpaper:dp-618

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