An intertemporal CAPM with stochastic volatility
John Campbell (),
Stefano Giglio (),
Christopher Polk and
Journal of Financial Economics, 2018, vol. 128, issue 2, 207-233
This paper studies the pricing of volatility risk using the first-order conditions of a long-term equity investor who is content to hold the aggregate equity market instead of overweighting value stocks and other equity portfolios that are attractive to short-term investors. We show that a conservative long-term investor will avoid such overweights to hedge against two types of deterioration in investment opportunities: declining expected stock returns and increasing volatility. We present novel evidence that low-frequency movements in equity volatility, tied to the default spread, are priced in the cross section of stock returns.
JEL-codes: G11 G12 (search for similar items in EconPapers)
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Working Paper: An Intertemporal CAPM with Stochastic Volatility (2015)
Working Paper: An Intertemporal CAPM with Stochastic Volatility (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:128:y:2018:i:2:p:207-233
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