TY  - JOUR
AU  - Bekaert, Geert
AU  - Hoerova, Marie
TI  - The VIX, the Variance Premium and Stock Market Volatility
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18995
PY  - 2013
Y2  - April 2013
DO  - 10.3386/w18995
UR  - http://www.nber.org/papers/w18995
L1  - http://www.nber.org/papers/w18995.pdf
N1  - Author contact info:
Geert Bekaert
Graduate School of Business
Columbia University
3022 Broadway, 411 Uris Hall
New York, NY 10027
Tel: 212/854-9156
Fax: 212/662-8474
E-Mail: gb241@columbia.edu

Marie Hoerova
European Central Bank 
 Sonnemannstrasse 20  
D-60314 Frankfurt am Main  
Germany
E-Mail: marie.hoerova@ecb.int
AB  - We decompose the squared VIX index, derived from US S&P500 options prices, into the conditional variance of stock returns and the equity variance premium. The latter is increasing in risk aversion in a wide variety of economic settings. We tackle several measurement issues assessing a plethora of state-of-the-art volatility forecasting models. We then examine the predictive power of the VIX and its two components for stock market returns and economic activity. The variance premium predicts stock returns but the conditional stock market variance predicts economic activity, and is more contemporaneously correlated with financial instability than is the variance premium.
ER  -