Tail risk premia and return predictability

Published

Journal Article

© 2015 Elsevier B.V. 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.

Full Text

Duke Authors

Cited Authors

  • Bollerslev, T; Todorov, V; Xu, L

Published Date

  • January 1, 2015

Published In

Volume / Issue

  • 118 / 1

Start / End Page

  • 113 - 134

International Standard Serial Number (ISSN)

  • 0304-405X

Digital Object Identifier (DOI)

  • 10.1016/j.jfineco.2015.02.010

Citation Source

  • Scopus