Abstract

https://ssrn.com/abstract=2696183
 


 



Firm Fundamentals and Variance Risk Premiums


Matthew R. Lyle


Northwestern University - Kellogg School of Management

James P. Naughton


Northwestern University - Kellogg School of Management

January 18, 2016


Abstract:     
We develop a tractable valuation model which shows that future asset returns are predictably related to two firm characteristics, book-to-market (bm) and return on equity (roe), because these measures carry information about priced risk. The model we derive predicts a negative relation between expected variance returns embedded in option prices (variance risk premiums) and both bm and roe. We confirm this prediction using a variety of empirical specifications. Our results show that accounting-based characteristics simultaneously inform investors about cash flows as well as the priced risk of those cash flows.

Number of Pages in PDF File: 55

Keywords: Fundamental Analysis, Valuation, Stock Returns, Varance Risk Premiums, Variance Returns, Option Returns


Open PDF in Browser Download This Paper

Date posted: November 29, 2015 ; Last revised: January 19, 2016

Suggested Citation

Lyle, Matthew R. and Naughton, James P., Firm Fundamentals and Variance Risk Premiums (January 18, 2016). Available at SSRN: https://ssrn.com/abstract=2696183 or http://dx.doi.org/10.2139/ssrn.2696183

Contact Information

Matthew R. Lyle (Contact Author)
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
James P. Naughton
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
Feedback to SSRN


Paper statistics
Abstract Views: 1,669
Downloads: 430
Download Rank: 51,127