Time-varying uncertainty and variance risk premium

28 Pages Posted: 23 Oct 2017 Last revised: 1 Nov 2023

See all articles by Xinfeng Ruan

Xinfeng Ruan

Xi'an Jiaotong-Liverpool University

Jin E. Zhang

University of Otago, Otago Business School, Department of Accountancy and Finance

Date Written: January 7, 2019

Abstract

This paper extends the AK production model in Pindyck and Wang (2013) into a more general setting in which the volatility of capital stock is stochastic and driven by shocks. After solving the equilibrium, the fundamental shocks are embedded into the stock price and the leverage effect is contributed from three distinct channels. As an application, we employ our extended AK production model to match well the negative variance risk premium.

Keywords: Time-varying uncertainty; AK production model; asset pricing; variance risk premium.

JEL Classification: G12; G13; E44.

Suggested Citation

Ruan, Xinfeng and Zhang, Jin E., Time-varying uncertainty and variance risk premium (January 7, 2019). 2019 Financial Markets & Corporate Governance Conference, Journal of Macroeconomics, Vol. 69, 2021, Available at SSRN: https://ssrn.com/abstract=3056533 or http://dx.doi.org/10.2139/ssrn.3056533

Xinfeng Ruan (Contact Author)

Xi'an Jiaotong-Liverpool University ( email )

111 Renai Road, SIP
, Lake Science and Education Innovation District
Suzhou, JiangSu province 215123
China

Jin E. Zhang

University of Otago, Otago Business School, Department of Accountancy and Finance ( email )

Dunedin, 9054
New Zealand
64 3 479 8575 (Phone)
64 3 479 8171 (Fax)

HOME PAGE: http://sites.google.com/site/jinzhanghomepage/home

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