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New research on investors' preferences regarding the timing of uncertainty resolution

posted Dec 7, 2016, 8:17 AM by Julian Thimme   [ updated Dec 7, 2016, 8:20 AM ]
My new working paper "Implied Volatility Duration and the Early Resolution Premium", coauthored by Christian Schlag and Ruediger Weber, deals with investors' preferences regarding the timing of resolution of uncertainty. We argue that our new measure, called "Implied Volatility Duration" quantifies for a particular stock when uncertainty about the stock's cash-flows are resolved. By looking at the cross-section of stock returns, we find that stocks that exhibit late resolution of uncertainty have to pay an annual premium of seven percent. This phenomenon has a risk-based explanation and we rationalize it in a general equilibrium model featuring a rational agent with recursive preferences. The paper can be downloaded here.
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