What ties return volatilities to price valuations and fundamentals?
By: Alexander David, Pietro Veronesi.
Contributors: Veronesi, Pietro.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 15563; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 15563.
Publisher: National Bureau of Economic Research
Published: 2009
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "The relation between the volatility of stocks and bonds and their price valuations is strongly time-varying, both in magnitude and direction, defying traditional asset pricing models and conventional wisdom.  We construct and estimate a model in which investors' learning about regular and unusual fundamental states leads to a non-monotonic V-shaped relation between volatilities and prices.  Structural forecasts from our model predict future return volatility and covariances with R2 ranging between 40% and 60% at the 1-year horizon.  The model's success stems largely from backing out the endogenous and time-varying pro (counter) cyclical weights that investors assign to earnings (inflation) news"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 12/22/2009.

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