The role of variance risk premium in predicting excess stock market return: out-of-sample evidences

Jian Chen, Liya Shen, Xiaoke Wang and Haomiao Zuo

Applied Economics Letters, 2015, vol. 22, issue 17, 1382-1388

Abstract: This paper examines the out-of-sample performance of variance risk premium in predicting excess stock market returns across nine international markets. We assess the out-of-sample predictability through statistical and economic significance tests and find that the variance risk premium has strong forecasting power at the 4-month horizon for most of the international markets considered in this study. In addition, we find the predictability is even stronger during the recent financial crisis period.

Date: 2015
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DOI: 10.1080/13504851.2015.1034831

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