The Variance Risk Premium Around the World

57 Pages Posted: 9 Mar 2011

See all articles by Juan M. Londono

Juan M. Londono

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: November 2010


This paper investigates the variance risk premium in an international setting. First, I provide new evidence on the basic stylized facts traditionally documented for the US. I show that while the variance premiums in several countries are, on average, positive and display significant time variation, they do not predict local equity returns in countries other than the US. Then, I extend the domestic model in Bollerslev, Tauchen and Zhou (2009) to an international setting. In light of the qualitative implications of my model, I provide empirical evidence that the US variance outperforms all other countries' variance premiums in predicting local and foreign equity returns.

Keywords: variance risk premium, economic uncertainty, interdependence, international integration, comovements, return predictability.

JEL Classification: E44, F36, G12, G13, G15

Suggested Citation

Londono-Yarce, Juan-Miguel, The Variance Risk Premium Around the World (November 2010). Available at SSRN: or

Juan-Miguel Londono-Yarce (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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