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The term structure of systematic and idiosyncratic risk
Author(s) -
Hollstein Fabian,
Prokopczuk Marcel,
Wese Simen Chardin
Publication year - 2019
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.21985
Subject(s) - variance (accounting) , systematic risk , econometrics , term (time) , variance risk premium , economics , mathematics , statistics , volatility (finance) , volatility risk premium , accounting , implied volatility , physics , quantum mechanics
We study the term structure of variance (total risk), systematic, and idiosyncratic risk. Consistent with the expectations hypothesis, we find that, for the entire market, the slope of the term structure of variance is mainly informative about the path of future variance. Thus, there is little indication of a time‐varying term premium. Turning the focus to individual stocks, we cannot reject the expectations hypothesis for systematic variance, but we strongly reject it for idiosyncratic variance. Our results are robust to jumps and potential statistical biases.