We examine the joint predictability of return and cash flow within a present value framework, by imposing the implications from a long-run risk model that allow for both time-varying volatility and volatility uncertainty. We provide new evidence that the expected return variation and the...

The dynamic dependencies in financial market volatility are generally well described by a long-memory fractionally integrated process. At the same time, the volatility risk premium, defined as the difference between the ex-post realized volatility and the market’s ex-ante expectation thereof,...

Motivated by the implications from a stylized self-contained general equilibrium model incorporating the effects of time-varying economic uncertainty, we show that the difference between implied and realized variation, or the variance risk premium, is able to explain a non-trivial fraction of...

Stock market volatility clusters in time, carries a risk premium, is fractionally integrated, and exhibits asymmetric leverage effects relative to returns. This paper develops a first internally consistent equilibrium based explanation for these longstanding empirical facts. The model is cast in...

We show that the compensation for rare events accounts for a large fraction of the equity and variance risk premia in the S&P 500 market index. The probability of rare events vary significantly over time, increasing in periods of high market volatility, but the risk premium for tail events...

Recent research has focused on modelling asset prices by Itô semimartingales. In such a modelling framework, the quadratic variation consists of a continuous and a jump component. This paper is about inference on the jump part of the quadratic variation, which can be estimated by the difference...

We suggest an iterated GMM approach to estimate and test the consumption based habit persistence model of Campbell and Cochrane (1999), and we apply the approach on annual and quarterly Danish stock and bond returns. For comparative purposes we also estimate and test the standard CRRA model. In...

We propose a new and flexible non-parametric framework for estimating the jump tails of Itô semimartingale processes. The approach is based on a relatively simple-to-implement set of estimating equations associated with the compensator for the jump measure, or its "intensity", that only...

This paper reviews basic notions of return variation in the context of a continuous-time arbitrage-free asset pricing model and discusses some of their applications. We first define return variation in the infeasible continuous-sampling case. Then we introduce realized measures obtained from...

We provide a new framework for estimating the systematic and idiosyncratic jump tail risks in financial asset prices. The theory underlying our estimates are based on in-fill asymptotic arguments for directly identifying the systematic and idiosyncratic jumps, together with conventional...