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Volatility Risk


  • Zhiguang (Gerald) Wang

    () (Deparment of Economics, South Dakota State University)


Classical capital asset pricing theory tells us that riskaverse investors would require higher returns to compensate for higher risk on an investment. One type of risk is price (return) risk, which reflects uncertainty in the price level and is measured by the volatility (standard deviation) of asset returns. Volatility itself is also known to be random and hence is perceived as another type of risk. Investors can bear price risk in exchange for a higher return. But are investors willing to pay a premium to enjoy lower volatility? In this essay, I try to answer this question by (1) introducing two different measures of volatility, (2) summarizing findings about volatility risk and its premiums in financial equity markets and (3) presenting preliminary research on volatility risk premiums in the markets for corn, wheat and soybeans, which are relevant to the South Dakota economy.

Suggested Citation

  • Zhiguang (Gerald) Wang, 2009. "Volatility Risk," Issue Briefs 2009513, South Dakota State University, Department of Economics.
  • Handle: RePEc:sda:ibrief:2009513

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    Cited by:

    1. Linh Xuan Diep Nguyen & Simona Mateut & Thanaset Chevapatrakul, 2016. "Business-Linkage Volatility Spillover between US Industries," Discussion Papers 2016/05, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    2. Fei Ren & Gao-Feng Gu & Wei-Xing Zhou, 2009. "Scaling and memory in the return intervals of realized volatility," Papers 0904.1107,, revised Aug 2009.
    3. Zhi-Qiang Jiang & Askery A. Canabarro & Boris Podobnik & H. Eugene Stanley & Wei-Xing Zhou, 2015. "Early warning of large volatilities based on recurrence interval analysis in Chinese stock markets," Papers 1508.07505,
    4. Chiu, Wan-Chien & Peña, Juan Ignacio & Wang, Chih-Wei, 2015. "Industry characteristics and financial risk contagion," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 411-427.
    5. X. F. Jiang & T. T. Chen & B. Zheng, 2013. "Time-reversal asymmetry in financial systems," Papers 1308.0669,
    6. Xiao-Hui Ni & Zhi-Qiang Jiang & Gao-Feng Gu & Fei Ren & Wei Chen & Wei-Xing Zhou, 2009. "Scaling and memory in the non-poisson process of limit order cancelation," Papers 0911.0057,
    7. Bernard Ben Sita, 2013. "Volatility links between US industries," Applied Financial Economics, Taylor & Francis Journals, vol. 23(15), pages 1273-1286, August.

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