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The variance risk premium around the world

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  • Juan M. Londono
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    Abstract

    This paper investigates the variance risk premium in an international setting. First, I provide new evidence on the basic stylized facts traditionally documented for the US. I show that while the variance premiums in several other countries are, on average, positive and display significant time variation, they do not predict local equity returns. Then, I extend the domestic model in Bollerslev, Tauchen and Zhou (2009) to an international setting. In light of the qualitative implications of my model, I provide empirical evidence that the US variance premium outperforms that of all other countries in predicting local and foreign equity returns.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1035.

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    Date of creation: 2011
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    Handle: RePEc:fip:fedgif:1035

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    1. Hao Zhou & Tim Bollerslev & Michael Gibson, 2005. "Dynamic estimation of volatility risk premia and investor risk aversion from option-implied and realized volatilities," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
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