Stock Return Predictability and Variance Risk Premia: Statistical Inference and International Evidence

Accepted

Scholarly Edition

Recent empirical evidence suggests that the variance risk premium predicts aggregate stock market returns. We demonstrate that statistical finite sample biases cannot "explain" this apparent predictability. Further corroborating the existing evidence of the U.S., we show that country specific regressions for France, Germany, Japan, Switzerland, the Netherlands, Belgium and the U.K. result in quite similar patterns. Defining a "global" variance risk premium, we uncover even stronger predictability and almost identical cross-country patterns through the use of panel regressions. Copyright © Michael G. Foster School of Business, University of Washington 2014.

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Cited Authors

  • Bollerslev, T; Marrone, J; Xu, L; Zhou, H

Published Date

  • August 5, 2014

Digital Object Identifier (DOI)

  • 10.1017/S0022109014000453

Citation Source

  • Scopus