#2006-007A "Equity Market Volatility and Expected Risk Premium"
by Long Chen, Hui Guo, and Lu Zhang
January 2006

This paper revisits the time-series relation between the conditional risk premium and variance of the equity market portfolio. The main innovation is that we construct a measure of the ex ante equity market risk premium using corporate bond yield spread data. This measure is forward-looking and does not rely critically on either realized equity returns or instrumental variables. More...