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...
We explore behavior and test theory regarding the determinants of flood insurance coverage in the coastal zone using household-level data for nine southeastern counties. We use Tobit regression models to assess the importance and magnitude of insurance cost, risk factors, community characteristics, and household attributes on flood insurance purchase for residential building structures. Overall estimates indicate price inelastic demand, though subsidized policyholders are more sensitive to price and hold greater flood insurance coverage (controlling for value of asset at risk). We find support for rational choice in the coastal zone, with flood insurance coverage positively correlated in the level of flood risk. We find evidence that coastal erosion risk effects flood insurance demand, and that community level erosion hazard mitigation projects influence flood insurance holdings, with shoreline armoring appearing to act as a substitute and beach replenishment appearing to act as a complement.
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...
This paper studies excess market returns in the relatively understudied financial markets of nine Middle Eastern and North African (MENA) countries within the context of three variants of the Capital Asset Pricing Model: the static international CAPM; the constant-parameter intertemporal CAPM; and a Markov-switching intertemporal CAPM which allows for the degree of integration with international equity markets to be time-varying. On the whole we find that: (1) Israel and Turkey are most strongly integrated with world financial markets; (2) in most other MENA markets examined there is primarily local pricing of risk and evidence of a positive risk-return trade-off; and (3) there is substantial time variation in the weights on local and global pricing of risk for all of these markets. Our results suggest that investment in many of these markets over the sample studied would have provided returns uncorrelated with global markets, and thus would have served as financial instruments with which portfolio diversification could have been improved.
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