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The cross-section of currency volatility premia
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Della Corte, Pasquale, Kozhan, Roman and Neuberger, Anthony (2021) The cross-section of currency volatility premia. Journal of Financial Economics, 139 (3). pp. 950-970. doi:10.1016/j.jfineco.2020.08.010 ISSN 0304-405X.
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Official URL: https://doi.org/10.1016/j.jfineco.2020.08.010
Abstract
We identify a global risk factor in the cross-section of implied volatility returns in currency markets. A zero-cost strategy that buys forward volatility agreements with downward sloping implied volatility curves and sells those with upward slopes - a volatility carry strategy - generates significant excess returns. The covariation with volatility carry returns fully explains the cross-sectional variation of our slope-sorted portfolios. The lower the slope, the more the forward volatility agreement is exposed to volatility carry risk.
| Item Type: | Journal Article | ||||||||
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| Subjects: | H Social Sciences > HG Finance | ||||||||
| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Foreign exchange rates -- Econometric models, Financial risk management -- Econometric models, Econometrics, Options (Finance) -- Mathematical models, Risk -- Econometric models | ||||||||
| Journal or Publication Title: | Journal of Financial Economics | ||||||||
| Publisher: | Elsevier Science BV | ||||||||
| ISSN: | 0304-405X | ||||||||
| Official Date: | March 2021 | ||||||||
| Dates: |
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| Volume: | 139 | ||||||||
| Number: | 3 | ||||||||
| Page Range: | pp. 950-970 | ||||||||
| DOI: | 10.1016/j.jfineco.2020.08.010 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
| Date of first compliant deposit: | 2 April 2020 | ||||||||
| Date of first compliant Open Access: | 15 February 2022 | ||||||||
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