IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Variance risk premia, asset predictability puzzles, and macroeconomic uncertainty

  • Hao Zhou
Registered author(s):

This paper presents predictability evidence from the difference between implied and expected variances or variance risk premium that: (1) the variance difference measure predicts a significant positive risk premium across equity, bond, and credit markets; (2) the predictability is short-run, in that it peaks around one to four months and dies out as the horizon increases; and (3) such a short-run predictability is complementary to that of the standard predictor variables--P/E ratio, forward spread, and short rate. These findings are potentially justifiable by a general equilibrium model with recursive preference that incorporates stochastic economic uncertainty. Calibration evidence suggests that such a framework is capable of reproducing the variance premium dynamics, especially its high skewness and kurtosis, without introducing jumps. The calibrated model can also qualitatively explain the equity premium puzzle and the bond risk premia in short horizons.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

File URL:
Download Restriction: no

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2010-14.

in new window

Date of creation: 2010
Date of revision:
Handle: RePEc:fip:fedgfe:2010-14
Contact details of provider: Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551
Web page:

More information through EDIRC

Order Information: Web:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2010-14. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kris Vajs)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.