Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We thank James Pinnington for research assistance. We also thank Bryan Kelly and Seth Pruitt for sharing their cross-sectional book-to-market index data. Terms of use: Documents in EconStor mayiii AbstractWe decompose the variance risk premium into upside and downside variance risk premia. These components reflect market compensation for changes in good and bad uncertainties. Their difference is a measure of the skewness risk premium (SRP), which captures asymmetric views on favorable versus undesirable risks. Empirically, we establish that the downside variance risk premium (DVRP) is the main component of the variance risk premium. We find a positive and significant link between the DVRP and the equity premium, and a negative and significant relation between the SRP and the equity premium. A simple equilibrium consumption-based asset pricing model supports our decomposition. JEL classification: G, G1, G12 Bank classification: Asset pricing RésuméNous décomposons la prime de risque de la variance en primes de risque à la hausse et à la baisse. Ces composantes reflètent la rémunération, par le marché, des risques liés aux variations de la « bonne » et de la « mauvaise » incertitude. La différence entre les deux représente une mesure de la prime de risque d'asymétrie, laquelle rend compte de l'asymétrie des opinions au sujet des risques favorables ou défavorables. Nous déterminons de façon empirique que la prime de risque de la variance à la baisse est le principal élément de la prime de risque de la variance. Nous constatons qu'il existe une relation positive significative entre la prime de risque de la variance à la baisse et la prime de risque sur actions, et une relation négative significative entre la prime de risque d'asymétrie et la prime de risque sur actions. Un modèle simple d'équilibre des actifs fondé sur la consommation étaye notre décomposition. Classification JEL : G, G1, G12 Classification de la Banque : Évaluation des actifs iv Non-Technical SummaryThe proper assessment of risk is of paramount importance to investment decisions, given the basic tradeoff between risk and reward. The variance risk premium (VRP) is a measure of risk compensation used by investors and policy-makers to gauge investors' sentiments on uncertainty. The VRP is the difference between the forward-looking market variance implied by option prices and the actual variance realized over time. Since option-implied (risk-neutral) variance is, on average, higher than realized...

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We thank James Pinnington for research assistance. We also thank Bryan Kelly and Seth Pruitt for sharing their cross-sectional book-to-market index data. Terms of use: Documents in EconStor mayiii AbstractWe decompose the variance risk premium into upside and downside variance risk premia. These components reflect market compensation for changes in good and bad uncertainties. Their difference is a measure of the skewness risk premium (SRP), which captures asymmetric views on favorable versus undesirable risks. Empirically, we establish that the downside variance risk premium (DVRP) is the main component of the variance risk premium. We find a positive and significant link between the DVRP and the equity premium, and a negative and significant relation between the SRP and the equity premium. A simple equilibrium consumption-based asset pricing model supports our decomposition. JEL classification: G, G1, G12 Bank classification: Asset pricing RésuméNous décomposons la prime de risque de la variance en primes de risque à la hausse et à la baisse. Ces composantes reflètent la rémunération, par le marché, des risques liés aux variations de la « bonne » et de la « mauvaise » incertitude. La différence entre les deux représente une mesure de la prime de risque d'asymétrie, laquelle rend compte de l'asymétrie des opinions au sujet des risques favorables ou défavorables. Nous déterminons de façon empirique que la prime de risque de la variance à la baisse est le principal élément de la prime de risque de la variance. Nous constatons qu'il existe une relation positive significative entre la prime de risque de la variance à la baisse et la prime de risque sur actions, et une relation négative significative entre la prime de risque d'asymétrie et la prime de risque sur actions. Un modèle simple d'équilibre des actifs fondé sur la consommation étaye notre décomposition. Classification JEL : G, G1, G12 Classification de la Banque : Évaluation des actifs iv Non-Technical SummaryThe proper assessment of risk is of paramount importance to investment decisions, given the basic tradeoff between risk and reward. The variance risk premium (VRP) is a measure of risk compensation used by investors and policy-makers to gauge investors' sentiments on uncertainty. The VRP is the difference between the forward-looking market variance implied by option prices and the actual variance realized over time. Since option-implied (risk-neutral) variance is, on average, higher than realized...

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Advances in variance analysis permit the splitting of the total quadratic variation of a jump diffusion process into upside and downside components. Recent studies establish that this decomposition enhances volatility predictions, and highlight the upside/downside variance spread as a driver of the asymmetry in stock price distributions. To appraise the economic gain of this decomposition, we design a new and flexible option pricing model in which the underlying asset price exhibits distinct upside and downside semi-variance dynamics driven by their model-free proxies. The new model outperforms common benchmarks, especially the alternative that splits the quadratic variation into diffusive and jump components.

Advances in variance analysis permit the splitting of the total quadratic variation of a jump-diffusion process into upside and downside components. Recent studies establish that this decomposition enhances volatility predictions and highlight the upside/downside variance spread as a driver of the asymmetry in stock price distributions. To appraise the economic gain of this decomposition, we design a new and flexible option pricing model in which the underlying asset price exhibits distinct upside and downside semivariance dynamics driven by the model-free proxies of the variances. The new model outperforms common benchmarks, especially the alternative that splits the quadratic variation into diffusive and jump components.

In many developed countries, automation has stoked fears of job losses by less-skilled workers. In Sub-Saharan Africa, by contrast, the adoption of low-skill-biased digital technologies complementary to informal workers offers the potential of a poverty-reducing trajectory by enabling productivity and creating more job opportunities. While informality is pervasive in Sub-Saharan African economies, building pathways to full formalization in the region has had limited success to date. Instead of focusing on formalization as an imperative policy goal, more realistic short to medium term policies should leverage low-skill-biased digital technologies to upgrade the skills of workers and enhance the productivity of firms in the informal sector. Moreover, more productive informal firms will likely seek to formalize if they perceive a positive tradeoff with the gains of being formal, arising from a conducive business environment mixing proper regulations, opportunities, and incentives. This paper summarizes what we know on digital technologies in Sub-Saharan Africa, and highlights their role as catalysts for productivity enhancement, job creation, entrepreneurship, access to credit, and financial inclusion in the informal sector. It also documents key challenges faced by governments in harnessing the benefits and risks of digitization for the informal sector and suggests a blueprint to help policymakers in Sub-Saharan Africa address them.

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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