Department of Economics and Business Economics

Dynamics of Variance Risk Premia, Investors' Sentiment and Return Predictability

Research output: Working paper/Preprint Working paper

Standard

Dynamics of Variance Risk Premia, Investors' Sentiment and Return Predictability. / Rombouts, Jerome V.K.; Stentoft, Lars; Violante, Francesco.

Aarhus : Institut for Økonomi, Aarhus Universitet, 2017.

Research output: Working paper/Preprint Working paper

Harvard

Rombouts, JVK, Stentoft, L & Violante, F 2017 'Dynamics of Variance Risk Premia, Investors' Sentiment and Return Predictability' Institut for Økonomi, Aarhus Universitet, Aarhus.

APA

Rombouts, J. V. K., Stentoft, L., & Violante, F. (2017). Dynamics of Variance Risk Premia, Investors' Sentiment and Return Predictability. Institut for Økonomi, Aarhus Universitet. CREATES Research Papers No. 2017-10

CBE

Rombouts JVK, Stentoft L, Violante F. 2017. Dynamics of Variance Risk Premia, Investors' Sentiment and Return Predictability. Aarhus: Institut for Økonomi, Aarhus Universitet.

MLA

Rombouts, Jerome V.K., Lars Stentoft, and Francesco Violante Dynamics of Variance Risk Premia, Investors' Sentiment and Return Predictability. Aarhus: Institut for Økonomi, Aarhus Universitet. (CREATES Research Papers; Journal number 2017-10). 2017., 72 p.

Vancouver

Rombouts JVK, Stentoft L, Violante F. Dynamics of Variance Risk Premia, Investors' Sentiment and Return Predictability. Aarhus: Institut for Økonomi, Aarhus Universitet. 2017 Mar 7.

Author

Rombouts, Jerome V.K. ; Stentoft, Lars ; Violante, Francesco. / Dynamics of Variance Risk Premia, Investors' Sentiment and Return Predictability. Aarhus : Institut for Økonomi, Aarhus Universitet, 2017. (CREATES Research Papers; No. 2017-10).

Bibtex

@techreport{e0f32c3f76884de48d50d4c7e728eb62,
title = "Dynamics of Variance Risk Premia, Investors' Sentiment and Return Predictability",
abstract = "We develop a joint framework linking the physical variance and its risk neutral expectation implying variance risk premia that are persistent, appropriately reacting to changes in level and variability of the variance and naturally satisfying the sign constraint. Using option market data and realized variances, our model allows to infer the occurrence and size of extreme variance events, and construct indicators signalling agents sentiment towards future market conditions. Our results show that excess returns are to a large extent explained by fear or optimism towards future extreme variance events and only marginally by the premium associated with normal price fluctuations.",
keywords = "Dynamics of Variance Risk Premia, Investors' Sentiment and Return Predictability",
author = "Rombouts, {Jerome V.K.} and Lars Stentoft and Francesco Violante",
year = "2017",
month = mar,
day = "7",
language = "English",
series = "CREATES Research Papers",
publisher = "Institut for {\O}konomi, Aarhus Universitet",
number = "2017-10",
type = "WorkingPaper",
institution = "Institut for {\O}konomi, Aarhus Universitet",

}

RIS

TY - UNPB

T1 - Dynamics of Variance Risk Premia, Investors' Sentiment and Return Predictability

AU - Rombouts, Jerome V.K.

AU - Stentoft, Lars

AU - Violante, Francesco

PY - 2017/3/7

Y1 - 2017/3/7

N2 - We develop a joint framework linking the physical variance and its risk neutral expectation implying variance risk premia that are persistent, appropriately reacting to changes in level and variability of the variance and naturally satisfying the sign constraint. Using option market data and realized variances, our model allows to infer the occurrence and size of extreme variance events, and construct indicators signalling agents sentiment towards future market conditions. Our results show that excess returns are to a large extent explained by fear or optimism towards future extreme variance events and only marginally by the premium associated with normal price fluctuations.

AB - We develop a joint framework linking the physical variance and its risk neutral expectation implying variance risk premia that are persistent, appropriately reacting to changes in level and variability of the variance and naturally satisfying the sign constraint. Using option market data and realized variances, our model allows to infer the occurrence and size of extreme variance events, and construct indicators signalling agents sentiment towards future market conditions. Our results show that excess returns are to a large extent explained by fear or optimism towards future extreme variance events and only marginally by the premium associated with normal price fluctuations.

KW - Dynamics of Variance Risk Premia, Investors' Sentiment and Return Predictability

M3 - Working paper

T3 - CREATES Research Papers

BT - Dynamics of Variance Risk Premia, Investors' Sentiment and Return Predictability

PB - Institut for Økonomi, Aarhus Universitet

CY - Aarhus

ER -