Macroeconomic Determinants of Stock Market Volatility and Volatility Risk-Premia∗
نویسندگان
چکیده
This paper introduces a no-arbitrage framework to assess how macroeconomic factors help explain the risk-premium agents require to bear the risk of fluctuations in stock market volatility. We develop a model in which return volatility is 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 payoffs indexed to nonparametric measures of realized volatility. We find that volatility risk-premia are strongly countercyclical and that in turn, they are of substantial help in predicting future economic activity.
منابع مشابه
Macroeconomic Determinants of Stock Market Returns, Volatility and Volatility Risk-Premia∗
This paper introduces a no-arbitrage framework to assess how macroeconomic factors help explain the risk-premium agents require to bear the risk of fluctuations 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...
متن کاملAsymmetric stock market volatility and the cyclical behavior of expected returns
Recent explanations of aggregate stock market fluctuations suggest that countercyclical stock market volatility is consistent with rational asset evaluations. In this paper, I develop a framework to study the causes of countercyclical stock market volatility. I find that countercyclical risk premia do not imply countercyclical return volatility. Instead, countercyclical stock volatility occurs ...
متن کاملExtreme News Events, Long-memory Volatility, and Time Varying Risk Premia in Stock Market Returns
This paper proposes a new GARCH-jump in mean model to test the presence of time varying risk premia associated with normal and extreme news events. The model allows for a dynamic jump component with autoregressive jump intensity, long-range dependence in volatility dynamics, and a volatility in mean structure separately for the normal and extreme news events. The results show significant jump r...
متن کاملOption Implied Volatility Factors and the Cross-Section of Market Risk Premia
The main goal of this paper is to study market volatility risk premia. I develop a multifactor model by proposing a pricing kernel, where the market return, the diffusion volatility and the jump volatility are fundamental factors that change the investment opportunity set. Based on estimates of the diffusion and jump volatility factors using an enriched dataset including S&P500 index returns, i...
متن کاملMarket Volatility Puzzle with Regard to the Systematic Risk of Bubble in the Securities Market of Iran
Stock market volatility is evaluated by measuring the variance of the market that is evaluated through consumption growth volatility in the framework of pricing of CCAPM models. This theory is not consistent with revealed facts, in reality; because consumption growth is very smooth but stock market appears highly volatile; this is famous to stock market volatility puzzle. In this regard, the ne...
متن کامل