TY - JOUR
T1 - Tail risk premia and return predictability
AU - Bollerslev, Tim
AU - Todorov, Viktor
AU - Xu, Lai
N1 - Publisher Copyright:
© 2015 Elsevier B.V.
PY - 2015/10/1
Y1 - 2015/10/1
N2 - The variance risk premium, defined as the difference between the actual and risk-neutral expectations of the forward aggregate market variation, helps predict future market returns. Relying on a new essentially model-free estimation procedure, we show that much of this predictability may be attributed to time variation in the part of the variance risk premium associated with the special compensation demanded by investors for bearing jump tail risk, consistent with the idea that market fears play an important role in understanding the return predictability.
AB - The variance risk premium, defined as the difference between the actual and risk-neutral expectations of the forward aggregate market variation, helps predict future market returns. Relying on a new essentially model-free estimation procedure, we show that much of this predictability may be attributed to time variation in the part of the variance risk premium associated with the special compensation demanded by investors for bearing jump tail risk, consistent with the idea that market fears play an important role in understanding the return predictability.
UR - http://www.scopus.com/inward/record.url?scp=84941599505&partnerID=8YFLogxK
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U2 - 10.1016/j.jfineco.2015.02.010
DO - 10.1016/j.jfineco.2015.02.010
M3 - Article
AN - SCOPUS:84941599505
SN - 0304-405X
VL - 118
SP - 113
EP - 134
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 1
ER -