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Volatility Risk Premium, Risk Aversion and the Cross-Section of Stock Returns

Vilhelmsson, Anders LU and Nyberg, Peter (2010) In Financial Review p.1079-1100
Abstract
We test if innovations in investor risk aversion are a priced factor in the stock market. Time series tests show that the new factor partly explains the strong momentum effect in stock returns. Furthermore, using 25 portfolios sorted on book-to-market and size as test assets, our new factor together with the market factor explains 64% of the variation in

average returns compared to 60% for the Fama-French model. The new factor is generally significant with an estimated risk premium close to its time series mean also when industry portfolios and portfolios sorted on previous returns are augmented to the test assets.
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
volatility risk premium, Asset pricing, risk aversion, momentum, habit formation
in
Financial Review
pages
1079 - 1100
publisher
Wiley-Blackwell
external identifiers
  • scopus:84928888370
ISSN
0732-8516
language
English
LU publication?
yes
id
b4ed7cb4-b9e6-4177-9bf5-fffb31321ae8 (old id 1487551)
date added to LUP
2009-10-13 09:52:10
date last changed
2018-05-29 09:58:10
@article{b4ed7cb4-b9e6-4177-9bf5-fffb31321ae8,
  abstract     = {We test if innovations in investor risk aversion are a priced factor in the stock market. Time series tests show that the new factor partly explains the strong momentum effect in stock returns. Furthermore, using 25 portfolios sorted on book-to-market and size as test assets, our new factor together with the market factor explains 64% of the variation in<br/><br>
average returns compared to 60% for the Fama-French model. The new factor is generally significant with an estimated risk premium close to its time series mean also when industry portfolios and portfolios sorted on previous returns are augmented to the test assets.},
  author       = {Vilhelmsson, Anders and Nyberg, Peter},
  issn         = {0732-8516},
  keyword      = {volatility risk premium,Asset pricing,risk aversion,momentum,habit formation},
  language     = {eng},
  pages        = {1079--1100},
  publisher    = {Wiley-Blackwell},
  series       = {Financial Review},
  title        = {Volatility Risk Premium, Risk Aversion and the Cross-Section of Stock Returns},
  year         = {2010},
}