Empirical Validation on Excess Volatility Puzzle

Main Article Content

Alireza Fallahi
Safoora Zarei


We study the excess volatility puzzle observed in the market by comparing the volatility of S&P 500 and 10-year Treasury yield over the sample period of 2013 to 2019. To estimate the volatility of stock and bond returns, we apply three different methods to check the puzzle: (1) historical volatility; (2) volatility indices and (3) econometrics models. Under normal and independent assumptions for returns of stocks and bonds, we derive a variation measure to check the puzzle. The results of the three models show the variance of the excess return of stock and bond is time changing. The time-varying of the variance of excess return demonstrates the inefficiency of markets due to predictably of excess return over time.

Excess volatility puzzle, market efficiency, econometrics model, volatility index, rolling window estimation.

Article Details

How to Cite
Fallahi, A., & Zarei, S. (2020). Empirical Validation on Excess Volatility Puzzle. Asian Journal of Economics, Finance and Management, 2(1), 42–48. Retrieved from https://www.globalpresshub.com/index.php/AJEFM/article/view/822
Original Research Article


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