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Conference Paper: Market excess returns, variance and the third cumulant

TitleMarket excess returns, variance and the third cumulant
Authors
KeywordsEquilibrium asset pricing model
Market excess return
Variance
The third cumulant
Variance risk premium
Issue Date2015
PublisherSocial Science Research Network.
Citation
The 2015 Asian Finance Association (AsianFA) Conference, Changsha, Hunan, China, 29 June-2 July 2015. How to Cite?
AbstractIn this paper, we develop an equilibrium asset pricing model for the market excess return, variance and the third cumulant by using a jump-diffusion process with stochastic variance and jump intensity in Cox, Ingersoll and Ross' (1985) production economy. Empirical evidence with S&P 500 index and options from January 1996 to December 2005 strongly supports our model prediction that lower the third cumulant, higher the market excess returns. Consistent with existing literature, the theoretical mean-variance relation is supported only by regressions on risk-neutral variance. We further demonstrate empirically that the third cumulant explains significantly the variance risk premium.
Persistent Identifierhttp://hdl.handle.net/10722/215628
SSRN

 

DC FieldValueLanguage
dc.contributor.authorChang, EC-
dc.contributor.authorZhang, JE-
dc.contributor.authorZhao, H-
dc.date.accessioned2015-08-21T13:33:20Z-
dc.date.available2015-08-21T13:33:20Z-
dc.date.issued2015-
dc.identifier.citationThe 2015 Asian Finance Association (AsianFA) Conference, Changsha, Hunan, China, 29 June-2 July 2015.-
dc.identifier.urihttp://hdl.handle.net/10722/215628-
dc.description.abstractIn this paper, we develop an equilibrium asset pricing model for the market excess return, variance and the third cumulant by using a jump-diffusion process with stochastic variance and jump intensity in Cox, Ingersoll and Ross' (1985) production economy. Empirical evidence with S&P 500 index and options from January 1996 to December 2005 strongly supports our model prediction that lower the third cumulant, higher the market excess returns. Consistent with existing literature, the theoretical mean-variance relation is supported only by regressions on risk-neutral variance. We further demonstrate empirically that the third cumulant explains significantly the variance risk premium.-
dc.languageeng-
dc.publisherSocial Science Research Network.-
dc.relation.ispartofAsian Finance Association (AsianFA) Conference 2015-
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectEquilibrium asset pricing model-
dc.subjectMarket excess return-
dc.subjectVariance-
dc.subjectThe third cumulant-
dc.subjectVariance risk premium-
dc.titleMarket excess returns, variance and the third cumulant-
dc.typeConference_Paper-
dc.identifier.emailChang, EC: ecchang@hku.hk-
dc.identifier.authorityChang, EC=rp01050-
dc.description.naturepublished_or_final_version-
dc.identifier.doi10.2139/ssrn.2564088-
dc.identifier.hkuros249974-
dc.identifier.spage1-
dc.identifier.epage39-
dc.publisher.placeUnited States-
dc.identifier.ssrn2564088-

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