Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/108620
Authors: 
Bali, Turan G.
Zhou, Hao
Year of Publication: 
2013
Series/Report no.: 
Koç University-TÜSİAD Economic Research Forum Working Paper Series 1306
Abstract: 
A conditional asset pricing model with risk and uncertainty implies that the time-varying exposures of equity portfolios to the market and uncertainty factors carry positive risk premiums. The empirical results from the size, book-to-market, and industry portfolios as well as individual stocks indicate that the conditional covariances of equity portfolios (individual stocks) with market and uncertainty predict the time-series and cross-sectional variation in stock returns. We find that equity portfolios that are highly correlated with economic uncertainty proxied by the variance risk premium (VRP) carry a significant, annualized 6 to 8 percent premium relative to portfolios that are minimally correlated with VRP.
Subjects: 
risk
uncertainty
expected returns
ICAPM
time-series and cross-sectional stock returns
variance risk premium
conditional asset pricing model
JEL: 
G10
G11
C13
Document Type: 
Working Paper

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