Variance Risk Premia, Asset Predictability Puzzles, and Macroeconomic Uncertainty
Hao Zhou ()
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Hao Zhou: PBC School of Finance, Tsinghua University, Beijing 100083, China
Annual Review of Financial Economics, 2018, vol. 10, issue 1, 481-497
Abstract:
This article reviews the predictability evidence on the variance risk premium: ( a) It predicts significant positive risk premia across equity, bond, currency, and credit markets; ( b) the predictability peaks at few-month horizons and dies out afterward; ( c) such a short-run predictability is complementary to the long-run predictability offered by the price-to-earnings ratio, forward rate, interest differential, and leverage ratio. Several structural approaches based on the notion of economic uncertainty are discussed for generating these stylized facts about the variance risk premium, which has broad implications for various empirical asset pricing puzzles.
Keywords: macroeconomic uncertainty; asset return predictability; variance risk premium; recursive utility function (search for similar items in EconPapers)
JEL-codes: G12 G13 G14 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (41)
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