Expected Market Returns: SVIX, Realized Volatility, and the Role of Dividends

Journal of Applied Econometrics, Forthcoming

16 Pages Posted: 16 Apr 2019

Date Written: January 7, 2019

Abstract

This note provides a replication of Martin’s (Quarterly Journal of Economics; 2017) finding that the implied volatility measure SVIX predicts US stock market returns up to twelvemonth horizons. I find that this result holds for both S&P 500 and CRSP market returns, regardless of whether returns include or exclude dividends. The predictability largely disappears after the SVIX index is replaced by an exponentially weighted moving average measure of realized volatility, suggesting that SVIX holds incremental forward looking information compared to realized volatility, despite the high correlation between the two volatility measures.

Keywords: equity premium predictability, dividends, implied and realized volatility

JEL Classification: C58, G12, G17

Suggested Citation

Lof, Matthijs, Expected Market Returns: SVIX, Realized Volatility, and the Role of Dividends (January 7, 2019). Journal of Applied Econometrics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3356496

Matthijs Lof (Contact Author)

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

HOME PAGE: http://sites.google.com/site/matthijslof/

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