NBER

Anh T. Le

University of North Carolina
Campus Box 3490
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Chapel Hill, NC 27599

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Institutional Affiliation: University of North Carolina

NBER Working Papers and Publications

May 2015The Price of Variance Risk
with Ian Dew-Becker, Stefano Giglio, Marius Rodriguez: w21182
In the period 1996-2014, the average investor in the variance swap market was indifferent to news about future variance at horizons ranging from 1 month to 14 years. It is only purely transitory and unexpected realized variance that were priced. These results present a challenge to most structural models of the variance risk premium, such as the intertemporal CAPM, recent models with Epstein-Zin preferences and long-run risks, and models where institutional investors have value-at-risk constraints. The results also have strong implications for macro models where volatility affects investment decisions, suggesting that investors are not willing to pay to hedge shocks in expected economic uncertainty.

Published: Dew-Becker, Ian & Giglio, Stefano & Le, Anh & Rodriguez, Marius, 2017. "The price of variance risk," Journal of Financial Economics, Elsevier, vol. 123(2), pages 225-250. citation courtesy of

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