This paper investigates the variance risk premium in an
international setting. First, I provide new evidence on the basic
stylized facts traditionally documented for the US. I show that
while the variance premiums in several other countries are, on
average, positive and display significant time variation, they do
not predict local equity returns. Then, I extend the domestic model
in Bollerslev, Tauchen and Zhou (2009) to an international setting.
In light of the qualitative implications of my model, I provide
empirical evidence that the US variance premium outperforms that of
all other countries in predicting local and foreign equity returns.
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