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An Intertemporal CAPM with stochastic volatility

Campbell, John Y., Giglio, Stefano, Polk, Christopher ORCID: 0009-0008-0133-6709 and Turley, Robert (2018) An Intertemporal CAPM with stochastic volatility. Journal of Financial Economics, 128 (2). pp. 207-233. ISSN 0304-405X

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Identification Number: 10.1016/j.jfineco.2018.02.011

Abstract

This paper studies the pricing of volatility risk using the Örst-order conditions of a long-term equity investor who is content to hold the aggregate equity market rather than overweighting value stocks and other equity portfolios that are attractive to short-term investors. We show that a conservative long-term investor will avoid such overweights in order to hedge against two types of deterioration in investment opportunities: declining expected stock returns, and increasing volatility. Empirically, we present novel evidence that low-frequency movements in equity volatility, tied to the default spread, are priced in the cross-section of stock returns.

Item Type: Article
Official URL: https://www.journals.elsevier.com/journal-of-finan...
Additional Information: © 2017 Elsevier
Divisions: Care Policy and Evaluation Centre
Finance
Subjects: H Social Sciences > HG Finance
Date Deposited: 02 Mar 2017 15:53
Last Modified: 12 Oct 2024 07:18
URI: http://eprints.lse.ac.uk/id/eprint/69634

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