Corradi, Valentina, Distaso, Walter and Mele, Antonio (2008) Macroeconomic determinants of stock market returns, volatility and volatility risk-premia. Discussion paper, 616. Financial Markets Group, London School of Economics and Political Science, London, UK.
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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 volatil- ity. 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 to variance swaps, which are contracts with payo¤s indexed to nonparametric measures of realized volatility. We nd that volatility risk-premia are strongly countercyclical, even more so than standard measures of return volatility.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2008 The Authors|
|Uncontrolled Keywords:||Realized volatility, Volatility risk-premium, Macroeconomic factors, No arbitrage restrictions, Concentrated simulated general method of moments, Block-bootstrap.|
|Library of Congress subject classification:||H Social Sciences > HB Economic Theory|
|Sets:||Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
|Date Deposited:||10 Jul 2009 14:55|
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