TY - JOUR
T1 - Stock return predictability and variance risk premia
T2 - Statistical inference and international evidence
AU - Bollerslev, Tim
AU - Marrone, James
AU - Xu, Lai
AU - Zhou, Hao
N1 - Funding Information:
We thank Geert Bekaert, Stephen Brown (the editor), Wayne Ferson, Bryan Kelly (the referee), Qianqiu Liu, Anthony Neuberger, Andrew Patton, Christian Schlag, George Tauchen, Liuren Wu, Guofu Zhou, and conference and seminar participants at the 2011 European Summer Symposium in Financial Markets (Asset Pricing) in Gerzensee, 2011 New York University Stern Volatility Institute Conference, 2011 Hedge Fund Conference at Imperial College London, 2011 China International Conference in Finance (CICF) in Wuhan, 2011 National Bureau of Economic Research (NBER)-National Science Foundation (NSF) Time Series Conference at Michigan State University, 2011 Inquire Europe Autumn Seminar in Luxembourg, Notre Dame University, University of Zurich, and the 2011 Duke Financial Econometrics Lunch Group for their helpful comments. We also gratefully acknowledge the 2011 CICF Best Paper Award. Bollerslev’s research was supported by a grant from the NSF to the NBER and Center for Research in Econometric Analysis of Time Series (CREATES) funded by the Danish National Research Foundation. This paper was written while Zhou was at the Board of Governors of the Federal Reserve System. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors.
Publisher Copyright:
Copyright 2014, Michael G. Foster School of Business, University of Washington.
PY - 2014/2/26
Y1 - 2014/2/26
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=84916202731&partnerID=8YFLogxK
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U2 - 10.1017/S0022109014000453
DO - 10.1017/S0022109014000453
M3 - Review article
AN - SCOPUS:84916202731
SN - 0022-1090
VL - 49
SP - 633
EP - 661
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 3
ER -