Empirical Research On The Relationship Of The Short-run And Long-run Components Of Market Volatility Risk And Stock Returns

This paper studies the impact of market volatility on the stock cross-section returns. The market volatility is decomposed into a long-run and short-run component through CGARCH-M model to study the impact of persistent volatility shocks and the impact of short-run fluctuations in stock returns. It’s found that the risk of market volatility is a significant and stable pricing factor.In this paper, the classical methods Fama-French three-factor model is used, the 300 stocks in Hushen300 are divided into carried the score to 5*5 dynamic portfolios in accordance with the scale and B/M ration. The classic Fama-Macbeth two-step method is used to get the load factor loadings and the price of risk of market volatility to the portfolio returns.The short-run volatility has a significant positive risk premium, while the factor loading of the long-run volatility is negative. In addition, small-cap stocks has higher sensitivity for short-run fluctuations and there is a significant positive factor loading; while large-cap stocks are less sensitive to short-run volatility, and tend to have a negative factor loading. Short-run volatility risk can effectively explain the "size premium" vision.