WHAT IS THE EXPECTED RETURN ON THE MARKET?

• 成果类型: Article
• 署名作者: Martin, Ian
• 署名单位: University of London; London School Economics & Political Science
• 刊物名称: QUARTERLY JOURNAL OF ECONOMICS
• ISSN/ISSBN: 0033-5533
• DOI: 10.1093/qje/qjw034
• 发表日期: 2017
• 页码: 367-433
• 关键词: STOCK RETURNS; temporal behavior; rare disasters; asset returns; risk-aversion; consumption; prices; predictability; substitution; expectations

摘要

I derive a lower bound on the equity premium in terms of a volatility index, SVIX, that can be calculated from index option prices. The bound implies that the equity premium is extremely volatile and that it rose above 20% at the height of the crisis in 2008. The time-series average of the lower bound is about 5%, suggesting that the bound may be approximately tight. I run predictive regressions and find that this hypothesis is not rejected by the data, so I use the SVIX index as a proxy for the equity premium and argue that the high equity premia available at times of stress largely reflect high expected returns over the very short run. I also provide a measure of the probability of a market crash, and introduce simple variance swaps, tradable contracts based on SVIX that are robust alternatives to variance swaps.