This paper revisits the time-series relation between the conditional risk premium and variance of the equity market portfolio. The main innovation is that we construct a measure of the ex ante equity market risk premium using corporate bond yield spread data. This measure is forward-looking and does not rely critically on either realized equity returns or instrumental variables. We find strong support for a positive risk-return tradeoff, and this result is not sensitive to a number of robustness checks, including alternative proxies of the conditional stock variance and controls for hedging demands.
CITATION STYLE
Chen, L., Guo, H., & Zhang, L. (2011). Equity Market Volatility and Expected Risk Premium. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.878687
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