Aggregate volatility expectations and threshold CAPM

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Arisoy Y. E., Salih A., Akdeniz L.

NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE, cilt.34, ss.231-253, 2015 (SSCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 34
  • Basım Tarihi: 2015
  • Doi Numarası: 10.1016/j.najef.2015.09.013
  • Dergi Adı: NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
  • Sayfa Sayıları: ss.231-253
  • Anahtar Kelimeler: Aggregate volatility, Threshold regression, Conditional CAPM, Range, VIX, STOCK-MARKET VOLATILITY, RANGE-BASED ESTIMATION, CROSS-SECTION, IMPLIED VOLATILITY, RISK, RETURNS, EQUILIBRIUM, COVARIANCES, VARIANCE, EXCHANGE
  • TED Üniversitesi Adresli: Hayır

Özet

We propose a volatility-based capital asset pricing model (V-CAPM) in which asset betas change discretely with respect to changes in investors' expectations regarding near-term aggregate volatility. Using a novel measure to proxy uncertainty about expected changes in aggregate volatility, i.e. monthly range of the VIX index (RVIX), we find that portfolio betas change significantly when uncertainty about aggregate volatility expectations is beyond a certain threshold level. Due to changes in their market betas, small and value stocks are perceived as riskier than their big and growth counterparts in bad times, when uncertainty about aggregate volatility expectations is high. The proposed model yields a positive and significant market risk premium during periods when investors do not expect significant uncertainty in near-term aggregate volatility. Our findings support a volatility-based time-varying risk explanation. (C) 2015 Elsevier Inc. All rights reserved.