Search Results
Working Paper
Variance Risk Premium Components and International Stock Return Predictability
In this paper, we document and explain the distinct behaviors of U.S. downside and upside variance risk premiums (DVP and UVP, respectively) and their international stock return predictability patterns. DVP, the compensation for bearing downside variance risk, is positive, highly correlated with the total variance premium, and countercyclical, whereas UVP is, on average, borderline positive and procyclical with large negative spikes around episodes of market turmoil. We then provide robust evidence that decomposing VP into its downside and upside components significantly improves domestic and ...
Working Paper
The Global Determinants of International Equity Risk Premiums
We examine the commonality in international equity risk premiums by linking empirical evidence for the international stock return predictability of US downside and upside variance risk premiums (DVP and UVP, respectively) with implications from an international asset pricing framework, which takes the perspective of a US/global investor and features asymmetric global macroeconomic, financial market, and risk aversion shocks. We find that DVP and UVP predict international stock returns through different global equity risk premium determinants: bad and good macroeconomic uncertainties, ...
Working Paper
Cross-Policy Risk Pricing
We show that interactions across government policies affect firms’ cost of equity capital. Exploiting the 2018–2019 U.S. tariff shocks and concurrent federal procurement spending, we find that firms facing higher tariff exposure earn higher subsequent risk premia, but this effect is substantially attenuated for firms receiving greater procurement. A one-standard-deviation increase in procurement attenuates about two-thirds of the tariff-related risk premium. Procurement is relatively more favorable for politically connected and economically vulnerable firms. Larger procurement inflows ...