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  • Open Daily: 10am - 10pm
    Alley-side Pickup: 10am - 7pm

    3038 Hennepin Ave Minneapolis, MN
    612-822-4611

Open Daily: 10am - 10pm | Alley-side Pickup: 10am - 7pm
3038 Hennepin Ave Minneapolis, MN
612-822-4611
Finance and Economics Discussion Series: Stock Return Predictability and Variance Risk Premia: Statistical Inference and International Evidence

Finance and Economics Discussion Series: Stock Return Predictability and Variance Risk Premia: Statistical Inference and International Evidence

Bollerslev, Tim
United States Federal Reserve Board
Et Al

Paperback

General Political Science

Publisher Price: $17.75

ISBN10: 1288701322
ISBN13: 9781288701322
Publisher: Bibliogov
Published: Feb 5 2013
Pages: 54
Weight: 0.25
Height: 0.11 Width: 7.44 Depth: 9.69
Language: English
Recent empirical evidence suggests that the variance risk premium, or the difference between risk-neutral and statistical expectations of the future return variation, predicts aggregate stock market returns, with the predictability especially strong at the 2-4 month horizons. We provide extensive Monte Carlo simulation evidence that statistical finite sample biases in the overlapping return regressions underlying these findings can not explain this apparent predictability. Further corroborating the existing empirical evidence, we show that the patterns in the predictability across different return horizons estimated from country specific regressions for France, Germany, Japan, Switzerland and the U.K. are remarkably similar to the pattern previously documented for the U.S. Defining a global variance risk premium, we uncover even stronger predictability and almost identical cross-country patterns through the use of panel regressions that effectively restrict the compensation for world-wide variance risk to be the same across countries. Our findings are broadly consistent with the implications from a stylized two-country general equilibrium model explicitly incorporating the effects of world-wide time-varying economic uncertainty.

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