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The Cross-Section of Currency Volatility Premia

Della Corte, P., Kozhan, R. and Neuberger, A. ORCID: 0000-0002-5344-1083 (2020). The Cross-Section of Currency Volatility Premia. Journal of Financial Economics,

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: Business School > Finance
Date Deposited: 12 May 2020 10:53
URI: https://openaccess.city.ac.uk/id/eprint/24178
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