재무연구 제 권 호 (2020년 8월)
Asian Review of Financial Research, Vol., No..
pp.1197~1245
pp.1197~1245
The Variation in Variance Risk Premium and Its Predictive Power: Evidence from Option Market Sentiments
Y. Peter Chung School of Business Administration University of California, Riverside
Sun-Joong Yoon School of Business Dongguk University
We show that the highly volatile variance risk premium (VRP) can be theoretically and empirically reconciled with investor sentiment captured by temporary variation in risk aversion. In an effort to understand the poor predictive power of the VRP in non-U.S. markets, we propose a new investor sentiment index, the Variance Sentiment index (VSI), obtained from the trading behavior of individual investors. We show that the VSI predicts local return dynamics, in a similar way to what the VRP does in the US market. Moreover, the VSI does not lose its predictive power even in the presence of the global VRP.
Y. Peter Chung
Sun-Joong Yoon
We show that the highly volatile variance risk premium (VRP) can be theoretically and empirically reconciled with investor sentiment captured by temporary variation in risk aversion. In an effort to understand the poor predictive power of the VRP in non-U.S. markets, we propose a new investor sentiment index, the Variance Sentiment index (VSI), obtained from the trading behavior of individual investors. We show that the VSI predicts local return dynamics, in a similar way to what the VRP does in the US market. Moreover, the VSI does not lose its predictive power even in the presence of the global VRP.
