Volatility Expectations and Returns / Lars A. Lochstoer, Tyler Muir.

Format:

Book

Author/Creator:

Lochstoer, Lars A.

Contributor:

National Bureau of Economic Research.

Muir, Tyler.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28102.

NBER working paper series no. w28102

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

We provide evidence that agents have slow-moving beliefs about stock market volatility that lead to initial underreaction to volatility shocks followed by delayed overreaction. These dynamics are mirrored in the VIX and variance risk premiums which reflect investor expectations about volatility and are also supported in surveys and in firm-level option prices. We embed these expectations into an asset pricing model and find that the model can account for a number of stylized facts about market returns and return volatility which are difficult to reconcile, including a weak, or even negative, risk-return tradeoff.

Notes:

Print version record

November 2020.