Search Results

SORT BY: PREVIOUS / NEXT
Keywords:Volatility and Uncertainty Disconnect 

Working Paper
When Uncertainty and Volatility Are Disconnected: Implications for Asset Pricing and Portfolio Performance

We analyze an environment where the uncertainty in the equity market return and its volatility are both stochastic and may be potentially disconnected. We solve a representative investor's optimal asset allocation and derive the resulting conditional equity premium and risk-free rate in equilibrium. Our empirical analysis shows that the equity premium appears to be earned for facing uncertainty, especially high uncertainty that is disconnected from lower volatility, rather than for facing volatility as traditionally assumed. Incorporating the possibility of a disconnect between volatility and ...
Finance and Economics Discussion Series , Paper 2021-063

FILTER BY Content Type

FILTER BY Author

FILTER BY Jel Classification

G11 1 items

G12 1 items

PREVIOUS / NEXT