Investor perceptions and volatility within a risk-return framework

Conditional asset pricing models within the risk-return literature describe a relation between expected risk and return for period t + 1, with expectations formed during period t. Existing risk estimates in the literature are formed using backward looking measures during period t, which are projected forward for period t + 1. Evidence suggests that ex post observations do not always correspond with conditional ex ante expectations. Using forward-looking survey data, I compare measures of expected risk, with common estimates of risk in the literature. Supporting empirical research, I find a strong relation between forward-looking investor risk perceptions and conditional risk estimates.