Aggregate Jump and Volatility Risk in the Cross-Section of Stock Returns PDF Download

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Aggregate Jump and Volatility Risk in the Cross-Section of Stock Returns

Aggregate Jump and Volatility Risk in the Cross-Section of Stock Returns PDF Author: Martijn Cremers
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Languages : en
Pages : 62

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Book Description
We examine the pricing of both aggregate jump and volatility risk in the cross-section of stock returns by constructing investable option trading strategies that load on one factor but are orthogonal to the other. Both aggregate jump and volatility risk help explain variation in expected returns. Consistent with theory, stocks with high sensitivities to jump and volatility risk have low expected returns. Both can be measured separately and are important economically, with a two-standard deviation increase in jump (volatility) factor loadings associated with a 3.5 to 5.1 (2.7 to 2.9) percent drop in expected annual stock returns.