Seminar
Excess Volatility: Beyond Discount Rates
Stefano Giglio (University of Chicago Booth School of Business)
Fédération des Banques Françaises Seminar
IDEI, April 4, 2016, 12:30–14:00, room MF 323
Reference
Stefano Giglio (University of Chicago Booth School of Business), “Excess Volatility: Beyond Discount Rates”, Paul Woolley Research Initiative Seminar, IDEI, April 4, 2016, 12:30–14:00, room MF 323.
Abstract
We document a form of excess volatility that is irreconcilable with standard models of prices, even after accounting for variation in discount rates. We compare prices of claims on the same cash flow stream but with different maturities. Standard models impose precise internal consistency conditions on the joint behavior of long and short maturity claims and these are strongly rejected in the data. In particular, long maturity prices are significantly more variable than justified by the behavior at short maturities. Our findings are pervasive. We reject internal consistency conditions in all term structures that we study, including equity options, currency options, credit default swaps, commodity futures, variance swaps, and inflation swaps.
Research partnership
Paul Woolley Research Initiative