Conditional equity risk premia and realized variance jump risk

Zhanglong Wang, Kent Wang*, Zheyao Pan

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


This study explores the relationship between realized variance jump risk and conditional equity risk premium. Using high frequency records of the Standard & Poor’s 500 index, we construct a realized variance measure and estimate its jump component using a Heterogeneous Autoregressive model augmented by a jump component. We find strong evidence that the realized variance jump risk measure significantly relates to excess stock market returns in-sample and out-of-sample from 1998 to 2010. Further, the predictive power of the variance jump remains both statistically and economically significant after controlling for commonly-used return predictors, and is also independent from variance risk premium and price jump risk. Calibration-based evidence is also consistent with our empirical findings.

Original languageEnglish
Pages (from-to)295-317
Number of pages23
JournalAustralian Journal of Management
Issue number2
Publication statusPublished - 4 May 2015
Externally publishedYes


  • Conditional equity premia
  • HAR-J model
  • realized variance jump
  • stock return prediction


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