Miao, JianjunWei, BinZhou, Hao2024-03-062024-03-062019-06J. Miao, B. Wei, H. Zhou. 2019. "Ambiguity Aversion and the Variance Premium" Quarterly Journal of Finance, Volume 09, Issue 02, pp.1950003-1950003. https://doi.org/10.1142/s20101392195000342010-13922010-1406https://hdl.handle.net/2144/48326This paper offers an ambiguity-based interpretation of the variance premium — the difference between risk-neutral and objective expectations of market return variance — as a compounding effect of both belief distortion and variance differential regarding the uncertain economic regimes. Our calibrated model can match the variance premium, the equity premium, and the risk-free rate in the data. We find that about 97% of the mean–variance premium can be attributed to ambiguity aversion. A three-way separation among ambiguity aversion, risk aversion, and intertemporal substitution, permitted by the smooth ambiguity preferences, plays a key role in our model’s quantitative performance.p. 1950003enAmbiguity aversionLearningVariance premiumRegime-shiftBelief distortionReturn predictabilityBanking, finance and investmentArticle2024-01-2910.1142/s20101392195000340000-0002-4715-5486 (Zhou, Hao)187586