What is the expected return on the market?

Ian Martin

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper presents a new lower bound on the equity premium in terms of a volatility index, SVIX, that can be calculated from index option prices. This bound, which relies only on very weak assumptions, implies that the equity premium is extremely volatile, and that it rose above 20% at the height of the crisis in 2008. More aggressively, I argue that the lower bound-whose time-series average is about 5%-is approximately tight and that the high equity premia available at times of stress largely reflect high expected returns over the very short run.

JEL-codes: E44 G10 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2016-03-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://eprints.lse.ac.uk/119013/ Open access version. (application/pdf)

Related works:
Journal Article: What is the Expected Return on the Market? (2017)
Working Paper: What is the expected return on the market? (2017)
Working Paper: What is the Expected Return on the Market? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119013

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