Volatility Risk Premium, Risk Aversion, and the Cross-Section of Stock Returns
AbstractWe test if innovations in investor risk aversion are a priced factor in the stock market. Using 25 portfolios sorted on book-to-market and size as test assets, our new factor together with the market factor explains 64% of the variation in average returns compared to 60% for the Fama-French model. The new factor is generally significant with an estimated risk premium close to its time series mean also when industry portfolios and portfolios sorted on previous returns are augmented to the test assets. Copyright (c) 2010, The Eastern Finance Association.
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Bibliographic InfoArticle provided by Eastern Finance Association in its journal Financial Review.
Volume (Year): 45 (2010)
Issue (Month): 4 (November)
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- Tim Bollerslev & Hao Zhou, 2007.
"Expected Stock Returns and Variance Risk Premia,"
CREATES Research Papers
2007-17, School of Economics and Management, University of Aarhus.
- Tim Bollerslev & Hao Zhou, 2006. "Expected stock returns and variance risk premia," Finance and Economics Discussion Series 2007-11, Board of Governors of the Federal Reserve System (U.S.).
- Tim Bollerslev & Tzuo Hao & George Tauchen, 2008. "Expected Stock Returns and Variance Risk Premia," CREATES Research Papers 2008-48, School of Economics and Management, University of Aarhus.
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