Stock market volatility clusters in time, carries a risk premium, is fractionally integrated, and exhibits asymmetric leverage effects relative to returns. This paper develops a first internally consistent equilibrium based explanation for these longstanding empirical facts. The model is cast in...

Stock market volatility clusters in time, appears fractionally integrated, carries a risk premium, and exhibits asymmetric leverage effects relative to returns. At the same time, the volatility risk premium, defined by the difference between the risk-neutral and objective expectations of the...

Stock market volatility clusters in time, appears fractionally integrated, carries a risk premium, and exhibits asymmetric leverage e®ects relative to returns. At the same time, the volatility risk premium, de¯ned by the di®erence between the risk-neutral and objective expectations of the...