Industry variance risk premium, cross‐industry correlation, and expected returns

Yabei Zhu, Xingguo Luo and Qi Xu

Journal of Futures Markets, 2023, vol. 43, issue 1, 3-32

Abstract: We investigate the variance risk premium (VRP) and implied correlation (IC) at the industry level. Using the index and sector exchange‐traded fund options, we construct‐sector VRPs and cross‐sector IC measures. Sector VRPs predict sector returns, and adding the average sector VRP with IC improves predictability. Combining the average sector VRP and IC outperforms the market VRP in predicting market returns both in‐sample and out‐of‐sample and generates sizeable economic values. We document a strong spillover effect from sector VRPs to the market VRP. The average sector VRP and cross‐sector IC contain information beyond the market VRP and cross‐stock IC.

Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1002/fut.22376

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:wly:jfutmk:v:43:y:2023:i:1:p:3-32

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().