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Volatility Risk Premium Risk Aversion And The Cross Section Of Stock Returns
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Book Synopsis Volatility Risk Premium, Risk Aversion and the Cross-Section of Stock Returns by : Peter M. Nyberg
Download or read book Volatility Risk Premium, Risk Aversion and the Cross-Section of Stock Returns written by Peter M. Nyberg and published by . This book was released on 2008 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We test if innovations in investor risk aversion are a priced factor in the stock market as is predicted by models incorporating habit formation in preferences. Our proxy for time-varying risk aversion is based on the volatility risk premium series constructed by Bollerslev et al. (2007). Time-series tests show that a mimicking portfolio tracking innovations in risk aversion partly captures the strong momentum effect in stock returns and produces only two significant alphas for 25 momentum portfolios. Furthermore, using 25 portfolios sorted on book-to-market and size as test assets in Fama-MacBeth regressions, our new factor together with the market factor explains 64% of the variation in average returns compared to 60% for the Fama-French three factor model. The new factor is generally significant with an estimated risk premium close to its time series mean also when industry portfolios and portfolios sorted on previous returns are included among the test assets.
Book Synopsis Time-varying Risk Premia and the Cross Section of Stock Returns by : Hui Guo
Download or read book Time-varying Risk Premia and the Cross Section of Stock Returns written by Hui Guo and published by . This book was released on 2002 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Volatility written by Robert A. Jarrow and published by . This book was released on 1998 with total page 472 pages. Available in PDF, EPUB and Kindle. Book excerpt: Written by a number of authors, this text is aimed at market practitioners and applies the latest stochastic volatility research findings to the analysis of stock prices. It includes commentary and analysis based on real-life situations.
Book Synopsis Credit Risk Modeling by : David Lando
Download or read book Credit Risk Modeling written by David Lando and published by Princeton University Press. This book was released on 2009-12-13 with total page 328 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit risk is today one of the most intensely studied topics in quantitative finance. This book provides an introduction and overview for readers who seek an up-to-date reference to the central problems of the field and to the tools currently used to analyze them. The book is aimed at researchers and students in finance, at quantitative analysts in banks and other financial institutions, and at regulators interested in the modeling aspects of credit risk. David Lando considers the two broad approaches to credit risk analysis: that based on classical option pricing models on the one hand, and on a direct modeling of the default probability of issuers on the other. He offers insights that can be drawn from each approach and demonstrates that the distinction between the two approaches is not at all clear-cut. The book strikes a fruitful balance between quickly presenting the basic ideas of the models and offering enough detail so readers can derive and implement the models themselves. The discussion of the models and their limitations and five technical appendixes help readers expand and generalize the models themselves or to understand existing generalizations. The book emphasizes models for pricing as well as statistical techniques for estimating their parameters. Applications include rating-based modeling, modeling of dependent defaults, swap- and corporate-yield curve dynamics, credit default swaps, and collateralized debt obligations.
Book Synopsis Financial Markets and the Real Economy by : John H. Cochrane
Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Book Synopsis Moment Risk Premia and the Cross-Section of Stock Returns by : Richard D. F. Harris
Download or read book Moment Risk Premia and the Cross-Section of Stock Returns written by Richard D. F. Harris and published by . This book was released on 2018 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the determinants of moment risk premia (MRP) and their relationship with stock returns. Stocks with high beta, idiosyncratic volatility and maximum return are associated with a high variance risk premium (VRP). The skew risk premium (SRP) is mainly driven by return reversals, the maximum return and idiosyncratic skewness, while the kurtosis risk premium (KRP) is associated with all firm characteristics. We find that both the VRP and SRP are negatively related to stock returns, while the KRP has no relation with stock returns. However, the negative relation between the SRP and stock returns is robust to the inclusion of firm-level variables, while the VRP is not.
Book Synopsis The Cross-section of Volatility and Expected Returns by : Andrew Ang
Download or read book The Cross-section of Volatility and Expected Returns written by Andrew Ang and published by . This book was released on 2004 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: "We examine the pricing of aggregate volatility risk in the cross-section of stock returns. Consistent with theory, we find that stocks with high sensitivities to innovations in aggregate volatility have low average returns. In addition, we find that stocks with high idiosyncratic volatility relative to the Fama and French (1993) model have abysmally low average returns. This phenomenon cannot be explained by exposure to aggregate volatility risk. Size, book-to-market, momentum, and liquidity effects cannot account for either the low average returns earned by stocks with high exposure to systematic volatility risk or for the low average returns of stocks with high idiosyncratic volatility"--National Bureau of Economic Research web site.
Book Synopsis Aggregate Jump and Volatility Risk in the Cross-Section of Stock Returns by : Martijn Cremers
Download or read book Aggregate Jump and Volatility Risk in the Cross-Section of Stock Returns written by Martijn Cremers and published by . This book was released on 2014 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the pricing of both aggregate jump and volatility risk in the cross-section of stock returns by constructing investable option trading strategies that load on one factor but are orthogonal to the other. Both aggregate jump and volatility risk help explain variation in expected returns. Consistent with theory, stocks with high sensitivities to jump and volatility risk have low expected returns. Both can be measured separately and are important economically, with a two-standard deviation increase in jump (volatility) factor loadings associated with a 3.5 to 5.1 (2.7 to 2.9) percent drop in expected annual stock returns.
Book Synopsis Priced Risk and Asymmetric Volatility in the Cross-Section of Skewness by : Robert F. Engle
Download or read book Priced Risk and Asymmetric Volatility in the Cross-Section of Skewness written by Robert F. Engle and published by . This book was released on 2009 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the sources of skewness in aggregate risk-factors and the cross-section of stock returns. In an ICAPM setting with conditional volatility, we find theoretical time series predictions on the relationships among volatility, returns, and skewness for priced risk factors. Market returns resemble these predictions; however, size, book-to-market, and momentum factor returns show alternative behavior, leading us to conclude these factors are not priced risks. We link aggregate risk and skewness to individual stocks and find empirically that the risk aversion effect manifests in individual stock skewness. Additionally, we find several firm characteristics that explain stock skewness. Smaller firms, value firms, highly levered firms, and firms with poor credit ratings have more positive skewness.
Book Synopsis Cointegration, Causality, and Forecasting by : Halbert White
Download or read book Cointegration, Causality, and Forecasting written by Halbert White and published by Oxford University Press, USA. This book was released on 1999 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: A collection of essays in honour of Clive Granger. The chapters are by some of the world's leading econometricians, all of whom have collaborated with and/or studied with both) Clive Granger. Central themes of Granger's work are reflected in the book with attention to tests for unit roots and cointegration, tests of misspecification, forecasting models and forecast evaluation, non-linear and non-parametric econometric techniques, and overall, a careful blend of practical empirical work and strong theory. The book shows the scope of Granger's research and the range of the profession that has been influenced by his work.
Book Synopsis Dynamic Estimation of Volatility Risk Premia and Investor Risk Aversion from Option-implied and Realized Volatilities by : Tim Bollerslev
Download or read book Dynamic Estimation of Volatility Risk Premia and Investor Risk Aversion from Option-implied and Realized Volatilities written by Tim Bollerslev and published by . This book was released on 2004 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This paper proposes a method for constructing a volatility risk premium, or investor risk aversion, index. The method is intuitive and simple to implement, relying on the sample moments of the recently popularized model-free realized and option-implied volatility measures. A small-scale Monte Carlo experiment suggests that the procedure works well in practice. Implementing the procedure with actual S&P 500 option-implied volatilities and high-frequency five-minute-based realized volatilities results in significant temporal dependencies in the estimated stochastic volatility risk premium, which we in turn relate to a set of underlying macro-finance state variables. We also find that the extracted volatility risk premium helps predict future stock market returns"--Abstract.
Book Synopsis A Time-varying Premium for Idiosyncratic Risk by : Daruo Xie
Download or read book A Time-varying Premium for Idiosyncratic Risk written by Daruo Xie and published by . This book was released on 2015 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: Merton (1987) predicts that idiosyncratic risk can be priced. I develop a simple equilibrium model of capital markets with information costs in which the idiosyncratic risk premium depends on the average level of idiosyncratic volatility. This dependence suggests that the idiosyncratic risk premium varies over time. I find that in U.S. markets, the covariance between stock-level idiosyncratic volatility and the idiosyncratic risk premium explains future stock returns. Stocks in the highest quintile of the covariance between the volatility and risk premium earn an average 3-factor alpha of 70 bps per month higher than those in the lowest quintile.
Book Synopsis Volatility and Time Series Econometrics by : Mark Watson
Download or read book Volatility and Time Series Econometrics written by Mark Watson and published by Oxford University Press. This book was released on 2010-02-11 with total page 432 pages. Available in PDF, EPUB and Kindle. Book excerpt: A volume that celebrates and develops the work of Nobel Laureate Robert Engle, it includes original contributions from some of the world's leading econometricians that further Engle's work in time series economics
Book Synopsis Volatility Risk and Stock Return Predictability by : Cesario Mateus
Download or read book Volatility Risk and Stock Return Predictability written by Cesario Mateus and published by . This book was released on 2014 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the role of volatility risk on stock return predictability. Using 596 stock options traded at the American Stock Exchange and the Chicago Board Options Exchange (CBOE) for the period from January 2001 to December 2010 we examine the relation between different idiosyncratic volatility measures and expected stock returns for a period that involves both the dotcom bubble and the recent financial crisis. We first show that implied idiosyncratic volatility is the best stock return predictor among the different volatility measures used. Second, cross-section firm-specific characteristics are important on stock returns forecast. Third, we provide evidence that higher short selling constraints impact negatively stock returns having liquidity the opposite effect.
Book Synopsis High Returns from Low Risk by : Pim van Vliet
Download or read book High Returns from Low Risk written by Pim van Vliet and published by John Wiley & Sons. This book was released on 2017-01-17 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt: Believing "high-risk equals high-reward" is holding your portfolio hostage High Returns from Low Risk proves that low-volatility, low-risk portfolios beat high-volatility portfolios hands down, and shows you how to take advantage of this paradox to dramatically improve your returns. Investors traditionally view low-risk stocks as safe but unprofitable, but this old canard is based on a flawed premise; it fails to see beyond the monthly horizon, and ignores compounding returns. This book updates the thinking and brings reality to modelling to show how low-risk stocks actually outperform high-risk stocks by an order of magnitude. Easy to read and easy to implement, the plan presented here will help you construct a portfolio that delivers higher returns per unit of risk, and explains how to achieve excellent investment results over the long term. Do you still believe that investors are rewarded for bearing risk, and that the higher the risk, the greater the reward? That old axiom is holding you back, and it is time to start seeing the whole picture. This book shows you, through deep historical simulation, how to reap the rewards of smarter investing. Learn how and why low-risk, low-volatility stocks beat the market Discover the formula that outperforms Greenblatt's Construct your own low-risk portfolio Select the right ETF or low-risk fund to manage your money Great returns and lower risk sound like a winning combination — what happens once everyone is doing it? The beauty of the low-risk strategy is that it continues to work even after the paradox is widely known; long-term investment success is possible for anyone who can shake off the entrenched wisdom and go low-risk. High Returns from Low Risk provides the proof, model and strategy to reign in your exposure while raking in the profit.
Book Synopsis Tradable Aggregate Risk Factors and the Cross-Section of Stock Returns by : Nikolay Doskov
Download or read book Tradable Aggregate Risk Factors and the Cross-Section of Stock Returns written by Nikolay Doskov and published by . This book was released on 2016 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a new set of tradable aggregate risk factors that help us understand the cross-section of stock returns. We argue that the true stochastic discount factor is a combination of aggregate return factors that drive equity market returns. Hence, we consider new factors using data such as market dividend swaps and market volatility futures. In the particular case of value and size portfolios, we find that differences in expected returns can be explained by a single-factor projection of the discount factor that loads only on a dividend growth return factor constructed with market dividend swap data. Hence, value and small capitalization stocks have higher expected returns due to their exposure to dividend growth returns implying that growth risks (dividend growth news and/or expected return news associated with dividend growth) are the only source of their risk premia. A tradable dividend level factor and a volatility-based factor are also priced in the cross-section of other stock portfolios sorted on dividend yield, earnings yield and cash-flow-to-price.
Book Synopsis Aggregate Volatility Risk and the Cross-Section of Stock Returns by : Van Anh (Vivian) Mai
Download or read book Aggregate Volatility Risk and the Cross-Section of Stock Returns written by Van Anh (Vivian) Mai and published by . This book was released on 2015 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the relation between aggregate volatility risk and the cross-section of stock returns in Australia. We use a stock's sensitivity to innovations in the ASX200 implied volatility (VIX) as a proxy for aggregate volatility risk. Consistent with theoretical predictions, aggregate volatility risk is negatively related to the cross-section of stock returns only when market volatility is rising. The asymmetric volatility effect is persistent throughout the sample period and is robust after controlling for size, book-to-market, momentum, and liquidity issues. There is some evidence that aggregate volatility risk is a priced factor, especially in months with increasing market volatility.
