Details
| Original language | English |
|---|---|
| Pages (from-to) | 253-292 |
| Number of pages | 40 |
| Journal | Review of Asset Pricing Studies |
| Volume | 8 |
| Issue number | 2 |
| Early online date | 24 Jul 2017 |
| Publication status | Published - 1 Dec 2018 |
| Externally published | Yes |
Abstract
A stylized theoretical model with stochastic volatility suggests the existence of a trade-off between returns and volatility-of-volatility. Using the VVIX, a measure of the optionimplied volatility of the volatility index, we confirm this prediction and detect that timevarying aggregate volatility-of-volatility commands an economically substantial and statistically significant negative risk premium. We find that a two-standard-deviation increase in aggregate volatility-of-volatility factor loadings is associated with a decrease in average annual returns of about 11%. These results are robust to controlling for aggregate volatility, jump risk, and several other characteristics and factor sensitivities, as well as various additional tests.
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Finance
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
Cite this
- Standard
- Harvard
- Apa
- Vancouver
- BibTeX
- RIS
In: Review of Asset Pricing Studies, Vol. 8, No. 2, 01.12.2018, p. 253-292.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - How aggregate volatility-of-volatility affects stock returns
AU - Hollstein, Fabian
AU - Prokopczuk, Marcel
N1 - Publisher Copyright: © The Author 2015. Copyright: Copyright 2021 Elsevier B.V., All rights reserved.
PY - 2018/12/1
Y1 - 2018/12/1
N2 - A stylized theoretical model with stochastic volatility suggests the existence of a trade-off between returns and volatility-of-volatility. Using the VVIX, a measure of the optionimplied volatility of the volatility index, we confirm this prediction and detect that timevarying aggregate volatility-of-volatility commands an economically substantial and statistically significant negative risk premium. We find that a two-standard-deviation increase in aggregate volatility-of-volatility factor loadings is associated with a decrease in average annual returns of about 11%. These results are robust to controlling for aggregate volatility, jump risk, and several other characteristics and factor sensitivities, as well as various additional tests.
AB - A stylized theoretical model with stochastic volatility suggests the existence of a trade-off between returns and volatility-of-volatility. Using the VVIX, a measure of the optionimplied volatility of the volatility index, we confirm this prediction and detect that timevarying aggregate volatility-of-volatility commands an economically substantial and statistically significant negative risk premium. We find that a two-standard-deviation increase in aggregate volatility-of-volatility factor loadings is associated with a decrease in average annual returns of about 11%. These results are robust to controlling for aggregate volatility, jump risk, and several other characteristics and factor sensitivities, as well as various additional tests.
UR - http://www.scopus.com/inward/record.url?scp=85071526470&partnerID=8YFLogxK
U2 - 10.1093/rapstu/rax019
DO - 10.1093/rapstu/rax019
M3 - Article
AN - SCOPUS:85071526470
VL - 8
SP - 253
EP - 292
JO - Review of Asset Pricing Studies
JF - Review of Asset Pricing Studies
SN - 2045-9920
IS - 2
ER -