Time-varying uncertainty and variance risk premium

Xinfeng Ruan; Jin E. Zhang

doi:10.1016/j.jmacro.2021.103347

Time-varying uncertainty and variance risk premium

Xinfeng Ruan^*, Jin E. Zhang

^*Corresponding author for this work

University of Otago

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

Abstract

This paper extends the AK production model in Pindyck and Wang (2013) into a more general setting in which the volatility of capital stock is stochastic and driven by shocks. After solving the equilibrium, the fundamental shocks are embedded into the stock price and the leverage effect is contributed from three distinct channels. As an application, we employ our extended AK production model to match well the negative variance risk premium.

Original language	English
Article number	103347
Journal	Journal of Macroeconomics
Volume	69
DOIs	https://doi.org/10.1016/j.jmacro.2021.103347
Publication status	Published - Sept 2021
Externally published	Yes

Keywords

AK production model
Asset pricing
Time-varying uncertainty
Variance risk premium

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10.1016/j.jmacro.2021.103347

Cite this

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title = "Time-varying uncertainty and variance risk premium",

abstract = "This paper extends the AK production model in Pindyck and Wang (2013) into a more general setting in which the volatility of capital stock is stochastic and driven by shocks. After solving the equilibrium, the fundamental shocks are embedded into the stock price and the leverage effect is contributed from three distinct channels. As an application, we employ our extended AK production model to match well the negative variance risk premium.",

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AB - This paper extends the AK production model in Pindyck and Wang (2013) into a more general setting in which the volatility of capital stock is stochastic and driven by shocks. After solving the equilibrium, the fundamental shocks are embedded into the stock price and the leverage effect is contributed from three distinct channels. As an application, we employ our extended AK production model to match well the negative variance risk premium.

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KW - Variance risk premium

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Time-varying uncertainty and variance risk premium

Abstract

Keywords

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