Abstract

https://ssrn.com/abstract=2021846
 
 

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An Intertemporal CAPM with Stochastic Volatility


John Y. Campbell


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Stefano Giglio


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Christopher Polk


London School of Economics

Robert Turley


Harvard University

August 31, 2016


Abstract:     
This paper studies the pricing of volatility risk using the first-order conditions of a long-term equity investor who is content to hold the aggregate equity market rather than overweighting value stocks and other equity portfolios that are attractive to short-term investors. We show that a conservative long-term investor will avoid such overweights in order to hedge against two types of deterioration in investment opportunities: declining expected stock returns, and increasing volatility. Empirically, we present novel evidence that low-frequency movements in equity volatility, tied to the default spread, are priced in the cross-section of stock returns.

Number of Pages in PDF File: 72

Keywords: ICAPM, time-varying expected returns, stochastic volatility, value premium

JEL Classification: G12, N22


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Date posted: March 15, 2012 ; Last revised: September 15, 2016

Suggested Citation

Campbell, John Y. and Giglio, Stefano and Polk, Christopher and Turley, Robert, An Intertemporal CAPM with Stochastic Volatility (August 31, 2016). Available at SSRN: https://ssrn.com/abstract=2021846 or http://dx.doi.org/10.2139/ssrn.2021846

Contact Information

John Y. Campbell
Harvard University - Department of Economics ( email )
Littauer Center
Room 213
Cambridge, MA 02138
United States
617-496-6448 (Phone)
617-495-7730 (Fax)
HOME PAGE: http://scholar.harvard.edu/campbell
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Stefano Giglio
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Chicago Booth School of Business Logo

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Christopher Polk (Contact Author)
London School of Economics ( email )
United Kingdom
HOME PAGE: http://personal.lse.ac.uk/polk/
Robert Turley
Harvard University ( email )
1875 Cambridge Street
Cambridge, MA 02138
United States
646-484-8614 (Phone)
HOME PAGE: http://www.people.fas.harvard.edu/~turley/
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