Predicting the VIX and the Volatility Risk Premium: What's Credit and Commodity Volatility Risk Got To Do With It?

Eric Ghysels and Elena Andreou

No 10236, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper presents an innovative approach to extracting factors which are shown to predict the VIX, the S&P 500 Realized Volatility and the Variance Risk Premium. The approach is innovative along two different dimensions, namely: (1) we extract factors from panels of filtered volatilities - in particular large panels of univariate financial asset ARCH-type models and (2) we price equity volatility risk using factors which go beyond the equity class. These are volatility factors extracted from panels of volatilities of short-term funding and long-run corporate spreads as well as volatilities of energy and metals commodities returns and sport/future spreads.

Keywords: Factor asset pricing models; Arch filters (search for similar items in EconPapers)
JEL-codes: C2 C5 G1 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-for and nep-rmg
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