Corradi, Valentina, Distaso, Walter and Mele, Antonio (2008) Macroeconomic determinants of stock market returns, volatility and volatility risk-premia. Financial Markets Group Discussion Papers (616). Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
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 volatility. 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 payoffs indexed to nonparametric measures of realized volatility. We find that volatility risk-premia are strongly countercyclical, even more so than standard measures of return volatility.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | https://www.fmg.ac.uk/ |
| Additional Information: | © 2008 The Authors |
| Divisions: | Financial Markets Group |
| Subjects: | H Social Sciences > HB Economic Theory |
| JEL classification: | E - Macroeconomics and Monetary Economics > E0 - General > E00 - General G - Financial Economics > G0 - General > G00 - General |
| Date Deposited: | 10 Jul 2009 14:55 |
| Last Modified: | 15 Sep 2023 23:13 |
| URI: | http://eprints.lse.ac.uk/id/eprint/24436 |
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