The Variance Risk Premium around the World

I extend the evidence on the basic stylized facts documented for the U.S. variance risk premium (VP) and show that, while VPs in other countries are also positive and time varying, they do not have predictive power for domestic stock returns, in contrast to the implications of existing single-country models. I also provide new empirical evidence that the U.S. VP has predictive power for international stock returns. To rationalize these results, I propose a two-country general equilibrium model and show that my model explains the predictive power of U.S. VP for international stock returns and the domestic predictability puzzle