Stock return predictability and variance risk premia: Statistical inference and international evidence

Tim Bollerslev, James Marrone, Lai Xu, Hao Zhou

Research output: Contribution to journalReview article

82 Scopus citations

Abstract

Recent empirical evidence suggests that the variance risk premium predicts aggregate stock market returns. We demonstrate that statistical finite sample biases cannot "explain" this apparent predictability. Further corroborating the existing evidence of the United States, we show that country-specific regressions for France, Germany, Japan, Switzerland, the Netherlands, Belgium, and the United Kingdom result in quite similar patterns. Defining a "global" variance risk premium, we uncover even stronger predictability and almost identical cross-country patterns through the use of panel regressions.

Original languageEnglish (US)
Pages (from-to)633-661
Number of pages29
JournalJournal of Financial and Quantitative Analysis
Volume49
Issue number3
DOIs
StatePublished - Feb 26 2014

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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