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Time-varying uncertainty and variance risk premium
Journal article   Peer reviewed

Time-varying uncertainty and variance risk premium

Xinfeng Ruan and Jin E. Zhang
Journal of macroeconomics, Vol.69, p.103347
01/09/2021

Abstract

Business & Economics Economics Social Sciences
This paper extends the AK production model in Pindyck and Wang (2013) into a more general setting in which the volatility of capital stock is stochastic and driven by shocks. After solving the equilibrium, the fundamental shocks are embedded into the stock price and the leverage effect is contributed from three distinct channels. As an application, we employ our extended AK production model to match well the negative variance risk premium.

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