By Bilal Hafeez 07-05-2019
In: deep-dives, Equities

Variance Risk Premium Components and International Stock Return Predictability

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Variance Risk Premium Components and International Stock Return Predictability Fed paper finds that decomposing variance premium (VP) into its downside and upside components significantly improves domestic and international stock return predictability. Downside VP is a robust predictor at 4-6 months, whereas upside VP performs the best at very short horizons. Here's the abstract: " In this paper, we document and explain the distinct behaviors of U.S. downside and upside variance risk premiums (DVP and UVP,…

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