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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, doi: 10.1016/j.jfineco.2020.08.010


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
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
Text - Accepted Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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