Journal of Banking & Finance Vol. 61 2015
Multi-factor volatility and stock returns
Abstract
In light of inconclusive evidence on the relation between market volatility and stock returns, this paper proposes a multi-factor volatility model and examines its impact on cross-sectional pricing. We also evaluate the out-of-sample performance and economic significance of multi-factor volatility. We find that conditional variances of the size and value dynamic factor earn significant and positive variance risk premia. In addition, multi-factor volatility can significantly improve the out-of-sample return predictability with a positive economic gain in asset allocation.
- DOI
- 10.1016/j.jbankfin.2015.09.013
- Volume
- 61
- Pages
- S132-S149
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib