Macroeconomic Determinants of Stock Market Returns, Volatility and Volatility Risk-Premia
AbstractThis paper introduces a no-arbitrage framework to assess how macroeconomic factors help explain the risk-premium agents require to bear the risk of .uctuations in stock market volatility. We develop a model in which return volatility and volatility risk-premia are stochastic and derive no-arbitrage conditions linking volatility to macroeconomic factors. We estimate the model using data related to variance swaps, which are contracts with payo¤s indexed to nonparametric measures of realized volatility. We .nd that volatility risk-premia are strongly countercyclical, even more so than standard measures of return volatility.
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Bibliographic InfoPaper provided by Financial Markets Group in its series FMG Discussion Papers with number dp616.
Date of creation: Jun 2008
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-06-27 (All new papers)
- NEP-MAC-2008-06-27 (Macroeconomics)
- NEP-UPT-2008-06-27 (Utility Models & Prospect Theory)
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- Arisoy, Yakup Eser, 2010. "Volatility risk and the value premium: Evidence from the French stock market," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 975-983, May.
- Conrad, Christian & Loch, Karin, 2012. "Anticipating Long-Term Stock Market Volatility," Working Papers 0535, University of Heidelberg, Department of Economics.
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