@article{b34aff4de84c42a59274f8b70c6d10c8,
title = "The term structure of equity and variance risk premia",
abstract = "We study the term structure of variance swaps, equity and variance risk premia. A model-free analysis reveals a significant price jump component in variance swaps. A model-based analysis shows that investors{\textquoteright} willingness to ensure against volatility risk increases after a market drop. This effect is stronger for short maturities, but more persistent for long maturities. During the financial crisis investors demanded large risk premia to hold equities, but the risk premia largely depended on and strongly decreased with the holding horizon. The term structure of equity and variance risk premia responds differently to various economic indicators.",
keywords = "Equity risk premium, Likelihood approximation, Stochastic volatility, Term structure, Variance risk premium, Variance swap",
author = "Yacine A{\"i}t-Sahalia and Mustafa Karaman and Loriano Mancini",
note = "Funding Information: We are grateful to the Editor and two referees for comments as well as to Peter Carr, Jin-Chuan Duan, Darrell Duffie, Damir Filipovic, Mathieu Fournier, Elise Gourier, Rob Engle, Michael Johannes, Markus Leippold, Oliver Linton, Ian Martin, Philippe Mueller, Andrew Papanicolaou, Christian Schlag, Jay Shanken, Tyler Shumway, George Skiadopoulos, Mete Soner, Fabio Trojani and Jules van Binsbergen. We have also received useful comments from participants at the 2016 International Conference on Econometrics in Honor of Maxwell King, the 2014 American Finance Association meetings, the 2013 Econometric Society meetings, the 2012 European Finance Association meetings, the 2011 Princeton–Lausanne workshop and seminars at the University of Cambridge, European University Institute, Imperial College, Goethe University, Tinbergen Institute, University of Piraeus, Banque de France and Morgan Stanley. Financial support from the SNSF under Sinergia grant 154445 (Mancini) is gratefully acknowledged. We thank Yan Wang for excellent research assistance. An earlier version of this paper circulated under the title “The Term Structure of Variance Swaps, Risk Premia and the Expectation Hypothesis”. Funding Information: We are grateful to the Editor and two referees for comments as well as to Peter Carr, Jin-Chuan Duan, Darrell Duffie, Damir Filipovic, Mathieu Fournier, Elise Gourier, Rob Engle, Michael Johannes, Markus Leippold, Oliver Linton, Ian Martin, Philippe Mueller, Andrew Papanicolaou, Christian Schlag, Jay Shanken, Tyler Shumway, George Skiadopoulos, Mete Soner, Fabio Trojani and Jules van Binsbergen. We have also received useful comments from participants at the 2016 International Conference on Econometrics in Honor of Maxwell King, the 2014 American Finance Association meetings, the 2013 Econometric Society meetings, the 2012 European Finance Association meetings, the 2011 Princeton?Lausanne workshop and seminars at the University of Cambridge, European University Institute, Imperial College, Goethe University, Tinbergen Institute, University of Piraeus, Banque de France and Morgan Stanley. Financial support from the SNSF under Sinergia grant 154445 (Mancini) is gratefully acknowledged. We thank Yan Wang for excellent research assistance. An earlier version of this paper circulated under the title ?The Term Structure of Variance Swaps, Risk Premia and the Expectation Hypothesis?. Publisher Copyright: {\textcopyright} 2020 Elsevier B.V.",
year = "2020",
month = dec,
doi = "10.1016/j.jeconom.2020.03.002",
language = "English (US)",
volume = "219",
pages = "204--230",
journal = "Journal of Econometrics",
issn = "0304-4076",
publisher = "Elsevier BV",
number = "2",
}