We find that firm-level variance risk premium, estimated as the difference between option-implied and expected variances, has a prominent explanatory power for credit spreads in the presence of market- and firm-level risk control variables identified in the existing literature. Such a...

This paper presents predictability evidence of the implied-expected variance difference, or variance risk premium, for financial market risk premia: (1) the variance difference measure predicts a positive risk premium across equity, bond, currency, and credit markets; (2) such a short-run...

We find that firm-level variance risk premium, estimated as the difference between option-implied and expected variances, has a prominent explanatory power for credit spreads in the presence of market- and firm-level risk control variables identified in the existing literature. Such a...

This paper reviews the predictability evidence of the variance risk premium: (1) it predicts significant positive risk premiums across equity, bond, currency, and credit markets; (2) the predictability peaks at a few month horizons and dies out afterwards; (3) such a short-run predictability is...

We find that firm-level variance risk premium, estimated as the difference between option-implied and expected variances, has a prominent explanatory power for credit spreads in the presence of market- and firm-level risk control variables identified in the existing literature. Such a...

We find that augmenting a regression of excess bond returns on the term structure of forward rates with a rolling estimate of the mean realized jump size - identified from high-frequency bond returns using the bi-power variation technique - substantially increases the R2 of the regression. This...

We find that interest rate variance risk premium (IRVRP) - the difference between implied and realized variances of interest rates - is a strong predictor of U.S. Treasury bond returns of maturities ranging between one and ten years for return horizons up to six months. IRVRP is not subsumed by...

Motivated by a novel empirical finding that variance risk premium (VRP) predicts trading volume, we analyze an asset pricing model where agents are initially uncertain about their subjective models for interpreting public news announcements. Such a setting is micro-founded by ambivalence in...

This paper develops a dynamic model of prices and trades in a risky security and an option, where agents use different subjective likelihood functions to interpret a public signal, but they are initially uncertain about the signal precision or mean. Our model can explain the seemingly overpriced...