A Comprehensive Look at the Return Predictability of Variance Risk Premia

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The discrepancy between in-sample and out-of-sample predictability of common predictors for asset returns has been widely discussed in the literature. We examine the out-of-sample predictability and its economic significance of Variance risk premium (VRP), which recently has shown empirical success in predicting asset returns in-sample. Extensive analysis indicates strong out-of-sample predictability of the VRP for U.S. stock index, currencies, credit index, and equity portfolios. However, we do not find any evidence for predictability of bond and commodity markets. We demonstrate economic significance by providing profitable market timing strategies exploiting the out-of-sample forecasting power of the VRP in a real time setting.
Publisher
WILEY
Issue Date
2018-04
Language
English
Article Type
Article
Keywords

EXPECTED RETURNS; STOCK RETURNS; SAMPLE; REGRESSIONS; VOLATILITY; OUTPUT; TESTS

Citation

JOURNAL OF FUTURES MARKETS, v.38, no.4, pp.425 - 445

ISSN
0270-7314
DOI
10.1002/fut.21882
URI
http://hdl.handle.net/10203/241087
Appears in Collection
MT-Journal Papers(저널논문)
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