Time-varying uncertainty and variance risk premium

Xinfeng Ruan and Jin E. Zhang

Journal of Macroeconomics, 2021, vol. 69, issue C

Abstract: This paper extends the AK production model in Pindyck and Wang (2013) into a more general setting in which the volatility of capital stock is stochastic and driven by shocks. After solving the equilibrium, the fundamental shocks are embedded into the stock price and the leverage effect is contributed from three distinct channels. As an application, we employ our extended AK production model to match well the negative variance risk premium.

Keywords: Time-varying uncertainty; AK production model; Asset pricing; Variance risk premium (search for similar items in EconPapers)
JEL-codes: E44 G12 G13 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:69:y:2021:i:c:s0164070421000471

DOI: 10.1016/j.jmacro.2021.103347

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