This paper offers an ambiguity-based interpretation of variance premium - the difference between risk-neutral and objective expectations of market return variance - as a compounding effect of both belief distortion and variance differential regarding the uncertain economic regimes. Our approach...

"This paper proposes a method for constructing a volatility risk premium, or investor risk aversion, index. The method is intuitive and simple to implement, relying on the sample moments of the recently popularized model-free realized and option-implied volatility measures. A small-scale Monte...

A fundamental idea in modern asset pricing is that risk aversion may be time varying and countercyclical (Campbell and Cochrane 1999). Existing evidence is scant and based mostly on experimental or survey data. We aim to test this key assumption using a large panel of real-world transaction...

This paper offers an ambiguity-based interpretation of variance premium --- the difference between risk-neutral and objective expectations of market return variance --- as a compounding effect of both belief distortion and variance differential regarding the uncertain economic regimes. Our...