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...

Chengtou bond is the only asset with market prices that can capture the funding cost of Chinese local government debt. In contrast to the U.S. municipal bonds, Chengtou bonds are issued by private corporations but implicitly guaranteed by local and the central governments, which are reflected by...