Finance Seminar（2018-25）

Topic: Variance Risk Premium, Higher Order Risk Premium, and Expected Stock Returns

Speaker: Hao Zhou, Tsinghua University - PBC School of Finance

Time: Wednesday, 31 October, 10:00-11:30

Location: Room 217, Guanghua Building 2

Abstract:

We provide a model-free, internally consistent decomposition of the total variance risk premium into a second order (variance) risk premium, and a higher order risk premium. The variance (higher order) risk premium contains short-term (medium-term) predictive power for market returns with statistically significant positive (negative) coefficients. Such a coherent decomposition improves return predictability both in-sample and out-of-sample, with R squared up to 14% for the 3-month horizon, dominating various ad hoc jump and tail risk measures. This improved predictability result remains economically significant in an asset allocation exercise and becomes even stronger for the portfolio returns of size, value, and momentum.

Introduction:

Hao Zhou is the Unigroup Chair Professor and Associate Dean of the PBC School of Finance, the director of Monetary Policy and Financial Stability Research Center & New Structural Financial Economics Research Center, and the Vice Chair of National Institute of Financial Research at Tsinghua University. Before 2013, he was a senior economist at Federal Reserve Board. He received a PhD degree in economics from Duke University in 2000.

Hao’s research agenda covers variance risk premiums on stock, bond, currency, and credit markets, stochastic volatility and asset pricing models, realized jumps on financial market and asset pricing puzzles, systemic risk and macro-prudential regulation of financial institutions, China financial markets and reforms. He has published in Journal of Finance, Review of Financial Studies, Journal of Financial Economics, among other leading academic journals.

His research has been recognized by numerous academic and professional awards, as well as the Best Teaching and Mentoring Award for graduate students by Tsinghua University. He is the general secretary for the review committee of Sun Yefang Financial Innovation Award.

//eng.pbcsf.tsinghua.edu.cn/content/details167_3449_x.html

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