City Research Online

The Cross-Section of Currency Volatility Premia

Della Corte, P., Kozhan, R. & Neuberger, A. ORCID: 0000-0002-5344-1083 (2020). The Cross-Section of Currency Volatility Premia. Journal of Financial Economics, 139(3), pp. 950-970. doi: 10.1016/j.jfineco.2020.08.010

Abstract

We identify a global risk factor in the cross-section of implied volatility returns in cur- rency markets. A zero-cost strategy that buys forward volatility agreements with down- ward 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.

Publication Type: Article
Additional Information: © 2020 Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Currency Volatility Risk Premia, Forward Volatility Agreement, Foreign Exchange Volatility, Term Structure
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
SWORD Depositor:
[thumbnail of TS_v35 [JFE_Revision_v6].pdf]
Preview
Text - Accepted Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

Download (881kB) | Preview

Export

Add to AnyAdd to TwitterAdd to FacebookAdd to LinkedinAdd to PinterestAdd to Email

Downloads

Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login