Stochastic Volatility in General Equilibrium

Journal Article (Journal Article)

The connections between stock market volatility and returns are studied within the context of a general equilibrium framework. The framework rules out a priori any purely statistical relationship between volatility and returns by imposing uncorrelated innovations. The main model generates a two-factor structure for stock market volatility along with time-varying risk premiums on consumption and volatility risk. It also generates endogenously a dynamic leverage effect (volatility asymmetry), the sign of which depends upon the magnitudes of the risk aversion and the intertemporal elasticity of substitution parameters.

Full Text

Duke Authors

Cited Authors

  • Tauchen, G

Published Date

  • December 1, 2011

Published In

Volume / Issue

  • 1 / 4

Start / End Page

  • 707 - 731

Electronic International Standard Serial Number (EISSN)

  • 2010-1406

International Standard Serial Number (ISSN)

  • 2010-1392

Digital Object Identifier (DOI)

  • 10.1142/S2010139211000237

Citation Source

  • Scopus