We explore whether the market variance risk premium (VRP) can be predicted. First, we propose a novel approach to measure VRP which distinguishes the investment horizon from the variance swap's maturity. We extract VRP from actual rather than synthetic S&P 500 variance swap quotes, thus avoiding...

This paper decomposes the risk premia of individual stocks into contributions from systematic and idiosyncratic risks. I introduce an affine jump-diffusion model, which accounts for both the factor structure of asset returns and that of the variance of idiosyncratic returns. The estimation is...

We derive a model-free option-based formula to estimate the contribution of market frictions to expected returns (CFER) within an asset pricing setting. We estimate CFER for the U.S. optionable stocks. We document that CFER is sizable, it predicts stock returns and it subsumes the effect of...

Because of risk aversion, any sensible investment valuation system should value less Projects that contribute more to the aggregate risk, i.e., that have a larger income elasticity of net benefits. In theory, this is done by adjusting discount rates to consumption betas. But in reality, for...