An Asset Class Characterization of the U.S. Equity Index Volatility Risk Premium

The authors created a 32-year return series for short volatility exposure, the Realized Premium Volatility (RVP). Their study suggest that exposure to volatility of the U.S equity markets offers an attractive risk premium; there are however occasional severe crashes that could wipe out years of returns.  The market tends to price volatility effectively in stable regimes (including ones with high but constant volatility), but risk pricing seems slow to adjust to large abrupt regime changes (i.e., a market crash).

FALLON, W., & PARK, J. (2016). An Asset Class Characterization of the U.S. Equity Index Volatility Risk Premium. Journal Of Portfolio Management, 43(1), 72-84.