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Excess Volatility: Beyond Discount Rates

Stefano Giglio and Bryan Kelly

No 22045, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document a form of excess volatility that is irreconcilable with standard models of prices, even after accounting for variation in discount rates. We compare prices of claims on the same cash flow stream but with different maturities. Standard models impose precise internal consistency conditions on the joint behavior of long and short maturity claims and these are strongly rejected in the data. In particular, long maturity prices are significantly more variable than justified by the behavior at short maturities. Our findings are pervasive. We reject internal consistency conditions in all term structures that we study, including equity options, currency options, credit default swaps, commodity futures, variance swaps, and inflation swaps.

JEL-codes: G02 G10 (search for similar items in EconPapers)
Date: 2016-02
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Stefano Giglio & Bryan Kelly, 2018. "Excess Volatility: Beyond Discount Rates*," The Quarterly Journal of Economics, vol 133(1), pages 71-127.

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