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The contribution of frictions to expected returns

Hirakiy, Kazuhiro; Skiadopoulos, George - 2018

We derive a model-free option-based formula to estimate the contribution of market frictions to expected returns (CFER) within an asset pricing setting. We estimate CFER for the U.S. optionable stocks. We document that CFER is sizable, it predicts stock returns and it subsumes the effect of...

Persistent link: https://www.econbiz.de/10011932555

Predictability of Currency Carry Trades and Asset Pricing Implications

Bakshi, Gurdip - 2012

This paper studies the time-series predictability of currency carry trades, constructed by selecting currencies to be bought or sold against the U.S. dollar, based on forward discounts. Changes in a commodity index, currency volatility and, to a lesser extent, a measure of liquidity predict...

Persistent link: https://www.econbiz.de/10013113110

Forecasting Volatility in the Presence of Limits to Arbitrage

Hong, Lu - 2014

of limits to arbitrage. When arbitrageurs face constraints on their trading strategies, option prices can become … disconnected from fundamentals, resulting in a distortion that reflects the limits to arbitrage. The corresponding market based …. Conceptually, the limits to arbitrage framework can shed light on relative asset prices as exemplified by this particular study …

Persistent link: https://www.econbiz.de/10013047179

Aggregate implied volatility spread and stock market returns

Han, Bing; Li, Gang - 2017 - Current Version: September 2017

Aggregate implied volatility spread (IVS), defined as the cross-sectional average difference in the implied volatilities of at-the-money call and put equity options, is significantly and positively related to future stock market returns at daily, weekly, monthly, to semiannual horizons. This...

Persistent link: https://www.econbiz.de/10011897782

Variance risk premiums in foreign exchange markets

Ammann, Manuel; Buesser, Ralf - 2013

Based on the theory of static replication of variance swaps we assess the sign and magnitude of variance risk premiums in foreign exchange markets. We find significantly negative risk premiums when realized variance is computed from intraday data with low frequency. As a likely consequence of...

Persistent link: https://www.econbiz.de/10010410031

Country News Sentiment Factors Predict Forex Prices

Hafez, Peter - 2013

In this study, we test a set of country macro sentiment indexes that measure the trailing sentiment on both scheduled and unscheduled economic and geopolitical news events. We develop a cross-over strategy in the FX market based on short to long-term news sentiment inflection points covering the...

Persistent link: https://www.econbiz.de/10013081446

Wave Function Method to Forecast Foreign Currencies Exchange Rates at Ultra High Frequency Electronic Trading in Foreign Currencies Exchange Markets

Ledenyov, Dimitri - 2015

The accurate forecast of the foreign currencies exchange rates at the ultra high frequency electronic trading in the foreign currencies exchange markets is a main topic of our research: 1) the present state of the foreign currencies exchange markets in Asia, Europe and North America; 2) the...

Persistent link: https://www.econbiz.de/10013013057

Option-implied term structures

Vogt, Erik - 2014

The illiquidity of long-maturity options has made it difficult to study the term structures of option spanning portfolios. This paper proposes a new estimation and inference framework for these option-implied term structures that addresses long-maturity illiquidity. By building a sieve estimator...

Persistent link: https://www.econbiz.de/10010459730

Market Moment Spreads and the Cross Section of Expected Returns : Evidence from the Energy Sector

Ruan, Xinfeng - 2019

In this paper, we extend the variance risk premium (VRP) in Bollerslev and Tauchen and Zhou (2009) into the moment spreads. Rather than analyzing the times-series market returns predictability, we newly investigate the predictability of market moment spreads in the cross section of expected...

Persistent link: https://www.econbiz.de/10012901135

Oil Volatility Risk and Expected Stock Returns

Christoffersen, Peter - 2014

After the financialization of commodity futures markets in 2004-05 oil volatility has become a strong predictor of returns and volatility of the overall stock market. Furthermore, stocks' exposure to oil volatility risk now drives the cross-section of expected returns. The difference in average...

Persistent link: https://www.econbiz.de/10013058330

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