00000nam 2200000za 4500 9.849163 CaOODSP 20221107153842 cr ||||||||||| 171221s2017 oncd #ob f000 0 eng d CaOODSP eng eng fre n-cn--- FB3-5/2017-58E-PDF Variance premium, downside risk and expected stock returns [electronic resource] / by Bruno Feunou ... [et al.]. Ottawa : Bank of Canada, 2017. ii, 45 p. : graphs Bank of Canada staff working paper, 1701-9397 ; 2017-58 "December 2017." Includes bibliographical references. "We decompose total variance into its bad and good components and measure the premia associated with their fluctuations using stock and option data from a large cross-section of firms. The total variance risk premium (VRP) represents the premium paid to insure against fluctuations in bad variance (called bad VRP), net of the premium received to compensate for fluctuations in good variance (called good VRP). Bad VRP provides a direct assessment of the degree to which asset downside risk may become extreme, while good VRP proxies for the degree to which asset upside potential may shrink. We find that bad VRP is important economically; in the cross-section, a one-standard-deviation increase is associated with an increase of up to 13% in annualized expected excess returns. Simultaneously going long on stocks with high bad VRP and short on stocks with low bad VRP yields an annualized risk-adjusted expected excess return of 18%. This result remains significant in double-sort strategies and cross-sectional regressions controlling for a host of firm characteristics and exposures to regular and downside risk factors"--Abstract, p. ii. Text in English, abstract in English and French. gccst Banks gccst Stock markets gccst Risk management Feunou, Bruno. Bank of Canada. Staff working paper (Bank of Canada) 1701-9397 ; 2017-58. (CaOODSP)9.806221 PDF 678 KB https://publications.gc.ca/collections/collection_2017/banque-bank-canada/FB3-5-2017-58-eng.pdf