The Conditional CAPM Does Not Explain Asset-Pricing Anomalies

https://www.nber.org/system/files/working_papers/w18995/w18995.pdf

The VIX, the Variance Premium and Stock Market Volatility

We decompose the squared VIX index, derived from US SP options prices, into the conditional variance of stock returns and the equity variance premium We evaluate a plethora of state-of-the-art volatility forecasting models to produce an accurate measure of the conditional variance We then examine the predictive power of the VIX and its two components for stock market returns, economic activity and financial instability The variance premium predicts stock returns while the conditional stock market variance predicts economic activity and has a relatively higher predictive power for financial instability than does the variance premium JEL Classification: C22, C52, G12, E32

The VIX, the variance premium and stock market volatility

There Is a Risk–Return Trade-Off After All

Recent empirical evidence suggests that the variance risk premium predicts aggregate stock market returns. We demonstrate that statistical finite sample biases cannot “explain” this apparent predictability. Further corroborating the existing evidence of the U.S., we show that country specific regressions for France, Germany, Japan, Switzerland and the U.K. result in quite similar patterns. Defining a “global” variance risk premium, we uncover even stronger predictability and almost identical cross-country patterns through the use of panel regressions. These new findings are broadly consistent with the implications from a two-country general equilibrium model explicitly incorporating the effects of time-varying economic uncertainty.

Stock Return Predictability and Variance Risk Premia : Statistical Inference and International Evidence

https://www.federalreserve.gov/pubs/ifdp/2014/1109/ifdp1109.pdf

U.S. Unconventional Monetary Policy and Transmission to Emerging Market Economies

We investigate the effects of U.S. unconventional monetary policies on sovereign yields, foreign exchange rates, and stock prices in emerging market economies (EMEs), and we analyze how these effects depend on country-specifc characteristics. We find that, although EME asset prices, mainly those of sovereign bonds, responded strongly to unconventional monetary policy announcements, these responses were not outsized with respect to a model that takes into account each country's time-varying vulnerability to U.S. interest rates affected by monetary policy shocks.

https://www.federalreserve.gov/pubs/ifdp/2012/1068/ifdp1068.pdf

Variance Risk Premiums and the Forward Premium Puzzle

This paper investigates the variance risk premium in an international setting. First, I provide new evidence on the basic stylized facts traditionally documented for the US. I show that while the variance premiums in several other countries are, on average, positive and display signi…cant time variation, they do not predict local equity returns. Then, I extend the domestic model in Bollerslev, Tauchen and Zhou (2009) to an international setting. In light of the qualitative implications of my model, I provide empirical evidence that the US variance premium outperforms that of all other countries in predicting local and foreign equity returns.

/pdf/the-variance-risk-premium-around-the-world-2giw1f0e42.pdf

The Variance Risk Premium Around the World

This paper explores the direct effects and spillovers of unconventional monetary and exchange rate policies. We find that official purchases of foreign assets have a large positive effect on a country’s current account that diminishes considerably as capital mobility rises. There is an important additional effect through the lagged stock of official assets. Official purchases of domestic assets, or quantitative easing (QE), appear to have no significant effect on a country’s current account when capital mobility is high, but there is a modest positive impact when capital mobility is low. The effects of purchases of foreign assets spill over to other countries in proportion to their degree of international financial integration. We also find that increases in US bond yields are associated with increases in foreign bond yields and in stock prices, as well as with depreciations of foreign currencies, but that all of these effects are smaller on days of US unconventional monetary policy announcements. We develop a theoretical model that is broadly consistent with our empirical results and that highlights the potential usefulness of domestic unconventional policies as responses to the effects of foreign policies of a similar type.

/pdf/direct-and-spillover-effects-of-unconventional-monetary-and-z88ay9z05t.pdf

Juan M. Londono

Papers

U.S. Unconventional Monetary Policy and Transmission to Emerging Market Economies

U.S. Unconventional Monetary Policy and Transmission to Emerging Market Economies

Variance Risk Premiums and the Forward Premium Puzzle

The Variance Risk Premium Around the World

Direct and Spillover Effects of Unconventional Monetary and Exchange Rate Policies