Department of Economics and Business Economics

Reexamining financial and economic predictability with new estimators of realized variance and variance risk premium

Research output: Working paperResearch

Standard

Reexamining financial and economic predictability with new estimators of realized variance and variance risk premium. / Casas, Isabel; Mao, Xiuping; Veiga, Helena.

Aarhus : Institut for Økonomi, Aarhus Universitet, 2018.

Research output: Working paperResearch

Harvard

Casas, I, Mao, X & Veiga, H 2018 'Reexamining financial and economic predictability with new estimators of realized variance and variance risk premium' Institut for Økonomi, Aarhus Universitet, Aarhus.

APA

Casas, I., Mao, X., & Veiga, H. (2018). Reexamining financial and economic predictability with new estimators of realized variance and variance risk premium. Aarhus: Institut for Økonomi, Aarhus Universitet. CREATES Research Papers, No. 2018-10

CBE

Casas I, Mao X, Veiga H. 2018. Reexamining financial and economic predictability with new estimators of realized variance and variance risk premium. Aarhus: Institut for Økonomi, Aarhus Universitet.

MLA

Casas, Isabel, Xiuping Mao and Helena Veiga Reexamining financial and economic predictability with new estimators of realized variance and variance risk premium. Aarhus: Institut for Økonomi, Aarhus Universitet. (CREATES Research Papers; Journal number 2018-10). 2018., 33 p.

Vancouver

Casas I, Mao X, Veiga H. Reexamining financial and economic predictability with new estimators of realized variance and variance risk premium. Aarhus: Institut for Økonomi, Aarhus Universitet. 2018 Mar 6.

Author

Casas, Isabel ; Mao, Xiuping ; Veiga, Helena. / Reexamining financial and economic predictability with new estimators of realized variance and variance risk premium. Aarhus : Institut for Økonomi, Aarhus Universitet, 2018. (CREATES Research Papers; No. 2018-10).

Bibtex

@techreport{7ca227b4e91c4ac08458c6c4d4c7c002,
title = "Reexamining financial and economic predictability with new estimators of realized variance and variance risk premium",
abstract = "This study explores the predictive power of new estimators of the equity variance risk premium and conditional variance for future excess stock market returns, economic activity, and financial instability, both during and after the last global financial crisis. These estimators are obtained from new parametric and semiparametric asymmetric extensions of the heterogeneous autoregressive model. Using these new specifications, we determine that the equity variance risk premium is a predictor of future excess stock returns, whereas conditional variance predicts them only for long horizons. Moreover, a comparison of the overall results reveals that the conditional variance gains predictive power during the global financial crisis period. Furthermore, both the variance risk premium and conditional variance are determined to be predictors of future financial instability, whereas conditional variance is determined to be the only predictor of economic activity for all horizons. Before the global financial crisis period, the new parametric asymmetric specification of the heterogeneous autoregressive model gains predictive power in comparison to previous work in the literature. However, the new time-varying coefficient models are the ones showing considerably higher predictive power for stock market returns and financial instability during the financial crisis, suggesting that an extreme volatility period requires models that can adapt quickly to turmoil.",
keywords = "Net measures, Nonparametric methods, Predictability, Realized variance, Variance risk premium, VIX",
author = "Isabel Casas and Xiuping Mao and Helena Veiga",
year = "2018",
month = "3",
day = "6",
language = "English",
publisher = "Institut for {\O}konomi, Aarhus Universitet",
type = "WorkingPaper",
institution = "Institut for {\O}konomi, Aarhus Universitet",

}

RIS

TY - UNPB

T1 - Reexamining financial and economic predictability with new estimators of realized variance and variance risk premium

AU - Casas,Isabel

AU - Mao,Xiuping

AU - Veiga,Helena

PY - 2018/3/6

Y1 - 2018/3/6

N2 - This study explores the predictive power of new estimators of the equity variance risk premium and conditional variance for future excess stock market returns, economic activity, and financial instability, both during and after the last global financial crisis. These estimators are obtained from new parametric and semiparametric asymmetric extensions of the heterogeneous autoregressive model. Using these new specifications, we determine that the equity variance risk premium is a predictor of future excess stock returns, whereas conditional variance predicts them only for long horizons. Moreover, a comparison of the overall results reveals that the conditional variance gains predictive power during the global financial crisis period. Furthermore, both the variance risk premium and conditional variance are determined to be predictors of future financial instability, whereas conditional variance is determined to be the only predictor of economic activity for all horizons. Before the global financial crisis period, the new parametric asymmetric specification of the heterogeneous autoregressive model gains predictive power in comparison to previous work in the literature. However, the new time-varying coefficient models are the ones showing considerably higher predictive power for stock market returns and financial instability during the financial crisis, suggesting that an extreme volatility period requires models that can adapt quickly to turmoil.

AB - This study explores the predictive power of new estimators of the equity variance risk premium and conditional variance for future excess stock market returns, economic activity, and financial instability, both during and after the last global financial crisis. These estimators are obtained from new parametric and semiparametric asymmetric extensions of the heterogeneous autoregressive model. Using these new specifications, we determine that the equity variance risk premium is a predictor of future excess stock returns, whereas conditional variance predicts them only for long horizons. Moreover, a comparison of the overall results reveals that the conditional variance gains predictive power during the global financial crisis period. Furthermore, both the variance risk premium and conditional variance are determined to be predictors of future financial instability, whereas conditional variance is determined to be the only predictor of economic activity for all horizons. Before the global financial crisis period, the new parametric asymmetric specification of the heterogeneous autoregressive model gains predictive power in comparison to previous work in the literature. However, the new time-varying coefficient models are the ones showing considerably higher predictive power for stock market returns and financial instability during the financial crisis, suggesting that an extreme volatility period requires models that can adapt quickly to turmoil.

KW - Net measures, Nonparametric methods, Predictability, Realized variance, Variance risk premium, VIX

M3 - Working paper

BT - Reexamining financial and economic predictability with new estimators of realized variance and variance risk premium

PB - Institut for Økonomi, Aarhus Universitet

CY - Aarhus

ER -