The Price of Variance Risk

The views in this paper are solely the those of the authors and do not reflect the views of the Board of Governors of the Federal Reserve System or the National Bureau of Economic Research. We appreciate helpful comments from and conversations with Dante Amengual, Jean-Francois Bacmann, Brandon Bates, Nick Bloom, John Campbell, John Cochrane, Greg Duffee, Darrell Duffie, Cam Harvey, Ian Martin, Ivan Shaliastovich and Harald Uhlig, Andrea Vedolin, Jessica Wachter, and seminar participants at the Booth Econometrics Workshop, University of New South Wales, University of Sydney, University of Technology, Sydney, University of Adelaide, Northwestern Kellogg, the 2014 Macro Finance Society Meeting, the Office for Financial Research, the Midwest Finance Association, ASU Sonoran Winter Finance Conference, Oxford, LSE, HEC, CSEF, Bocconi, and MIT Sloan. We are particularly grateful to Gerald Lim and Markit Group for providing variance swap data.