against volatility risk increases after a market drop. This effect is stronger for short horizons and more persistent for long …

of risk premia if and only if volatility is stochastic. Our model can thus justify the recent empirical results on the … term structure of risk premia if the pricing of volatility risk is downward sloping (in absolute value) in the data and if … downward-sloping term structures of returns on a given market are driven solely by exposures to volatility risk. We test these …