Journal of Financial Economics Vol. 118 No. 1 2015
Tail risk premia and return predictability
Abstract
The variance risk premium, defined as the difference between the actual and risk-neutral expectations of the forward aggregate market variation, helps predict future market returns. Relying on a new essentially model-free estimation procedure, we show that much of this predictability may be attributed to time variation in the part of the variance risk premium associated with the special compensation demanded by investors for bearing jump tail risk, consistent with the idea that market fears play an important role in understanding the return predictability.
- DOI
- 10.1016/j.jfineco.2015.02.010
- Volume
- 118
- Issue
- 1
- Pages
- 113-134
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref