Who should buy stocks when volatility spikes?

Andrés Schneider

Journal of Financial Markets, 2022, vol. 60, issue C

Abstract: I find that when volatility spikes, patient and more risk-averse investors should increase their exposure to stocks whereas impatient and less risk-averse investors should decrease it. This is because investors with a greater willingness to bear risk choose a larger exposure to risky assets on average, so volatility shocks affect their wealth relatively more. In general equilibrium, the deterioration of impatient and less risk-averse investors’ wealth implies their ability to hold risky assets gets impaired, and thus they sell their positions to patient and more risk-averse investors at lower prices and higher expected excess returns.

Keywords: Stochastic volatility; General equilibrium; Heterogeneous investors (search for similar items in EconPapers)
JEL-codes: E21 E44 G11 G12 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:60:y:2022:i:c:s1386418121000756

DOI: 10.1016/j.finmar.2021.100702

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