Skip to content

Equity market volatility and expected risk premium

by Long Chen

"This paper revisits the time-series relation between the conditional risk premium and variance of the equity market portfolio. The main innovation is that we construct a measure of the ex ante equity market risk premium using corporate bond yield spread data. This measure is forward-looking and does not rely critically on either realized equity returns or instrumental variables. We find strong support for a positive risk-return tradeoff, and this result is not sensitive to a number of robustness checks, including alternative proxies of the conditional stock variance and controls for hedging demands"--Federal Reserve Bank of St. Louis web site.

Writing a summary for young readers…

For young readers

Book data: Open Library