Moment Risk Premia and Stock Return Predictability

Zhenzhen Fan, Xiao Xiao and Hao Zhou

Journal of Financial and Quantitative Analysis, 2022, vol. 57, issue 1, 67-93

Abstract: We study the predictive power of option-implied moment risk premia embedded in the conventional variance risk premium. We find that although the second-moment risk premium predicts market returns in short horizons with positive coefficients, the third-moment (fourth-moment) risk premium predicts market returns in medium horizons with negative (positive) coefficients. Combining the higher-moment risk premia with the second-moment risk premium improves the stock return predictability over multiple horizons, both in sample and out of sample. The finding is economically significant in an asset-allocation exercise and survives a series of robustness checks.

Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:57:y:2022:i:1:p:67-93_3

Access Statistics for this article

More articles in Journal of Financial and Quantitative Analysis from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().