Stock returns and volatility: Pricing the short-run and long-run components of market risk

Arbeitspapier

We explore the cross-sectional pricing of volatility risk by decomposing equity market volatility into short- and long-run components. Our finding that prices of risk are negative and significant for both volatility components implies that investors pay for insurance against increases in volatility, even if those increases have little persistence. The short-run component captures market skewness risk, which we interpret as a measure of the tightness of financial constraints. The long-run component relates closely to business cycle risk. Furthermore, a three-factor pricing model with the market return and the two volatility components compares favorably to benchmark models.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Staff Report ; No. 254

Klassifikation und Themen

• Klassifikation: Wirtschaft ; General Financial Markets: General (includes Measurement and Data) ; Asset Pricing; Trading Volume; Bond Interest Rates
• Thema: asset pricing, stochastic volatility, cross section of returns ; Capital Asset Pricing Model ; Volatilität ; Stochastischer Prozess ; Kapitalertrag ; ARCH-Modell ; Theorie

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Adrian, Tobias ; Rosenberg, Joshua
• Ereignis: Veröffentlichung
• (wer): Federal Reserve Bank of New York
• (wo): New York, NY
• (wann): 2006

Weitere Informationen

• Handle: http://hdl.handle.net/10419/60684
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ