The term structure of systematic and idiosyncratic risk. Issue 4 (11th December 2018)

• Record Type: Journal Article
• Authors: Hollstein, Fabian; Prokopczuk, Marcel; Wese Simen, Chardin
• Is Part Of: Journal of futures markets. Volume 39:Issue 4(2019)
• Page Start: 435
• Page End: 460
• Publication Date: 2018-12-11
• Subjects: expectations hypothesis -- idiosyncratic risk -- implied correlation -- model‐free option‐implied variance -- options -- systematic risk -- term structure; Commodity exchanges -- Periodicals; Foreign exchange futures -- Periodicals; 332.632
• DOI: 10.1002/fut.21985
• Languages: English
• ISSNs: 0270-7314

Abstract

Abstract: 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.