29 Pages Posted: 26 Feb 2007
Date Written: February 2007
Investors' expectations of market volatility, captured by the VIX (the Chicago Board Options Exchange's volatility index - also known as the "investor fear gauge"), affects the expected returns of US equities in two ways. Firstly, the VIX is a priced-factor in a five-factor model of daily returns (where Fama and French's three-factor model is augmented with a momentum factor and the VIX). Secondly, changes in the VIX drive variations in the expected returns of the other factors included in this model of returns, notably the market risk-premium (Rm-Rf) and the value-premium (HML).
Keywords: Asset-pricing, market volatility, VIX
JEL Classification: G12
Suggested Citation: Suggested Citation
Durand, Robert B. B. and Lim, Dominic and Zumwalt, J. Kenton, Fear and the Fama-French Factors (February 2007). Available at SSRN: https://ssrn.com/abstract=965587 or http://dx.doi.org/10.2139/ssrn.965587