The cross-section of currency volatility premia

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Title: The cross-section of currency volatility premia
Authors: Della Corte, P
Kozhan, R
Neuberger, A
Item Type: Journal Article
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 - 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.
Issue Date: 15-Aug-2020
Date of Acceptance: 20-Jan-2020
DOI: 10.1016/j.jfineco.2020.08.010
ISSN: 0304-405X
Publisher: Elsevier
Journal / Book Title: Journal of Financial Economics
Keywords: 1402 Applied Economics
1502 Banking, Finance and Investment
1606 Political Science
Publication Status: Published online
Embargo Date: 2022-02-15
Online Publication Date: 2020-08-15
Appears in Collections:Imperial College Business School

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