The cross-section of currency volatility premia

• 成果类型: Article
• 署名作者: Della Corte, Pasquale; Kozhan, Roman; Neuberger, Anthony
• 署名单位: Imperial College London; University of Warwick; City St Georges, University of London
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2020.08.010
• 发表日期: 2021
• 页码: 950-970
• 关键词: Currency volatility risk premia; Forward volatility agreement; Foreign exchange volatility; term structure

摘要

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. (C) 2020 Elsevier B.V. All rights reserved.