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Option-implied information and predictability of extreme returns

Vilkovz, Grigory; Xiaox, Yan - 2013 - This version: January 28, 2013

We study whether prices of traded options contain information about future extreme market events. Our option-implied conditional expectation of market loss due to tail events, or tail loss measure, predicts future market returns, magnitude, and probability of the market crashes, beyond and above...

Persistent link: https://www.econbiz.de/10010226098

Expected Equity Returns Should Correlate with Idiosyncratic Risk

Bruno, Giovanni - 2018

Because levered equity is an option on the firm, variations in asset idiosyncratic risk (ivol) induces a negative relationship between equity ivol and expected returns. We show that the effect is caused by the nonlinear payoff of equity and the law of one price, and is present in all but...

Persistent link: https://www.econbiz.de/10012910108

Cross-section without factors : correlation risk, strings and asset prices

Distaso, Walter; Mele, Antonio; Vilkov, Grigory - 2021 - This version: January 13, 2021

quantities driven by common factors, which hinders achieving a neat definition of a correlation premium. We formulate a model … returns: an average correlation premium. This premium is both statistically and economically significant, and considerably …-series behavior of the premium for the risk of changes in asset correlations (the premium for correlation risk), including its inverse …

Persistent link: https://www.econbiz.de/10012421289

The Pricing of Long and Short Run Variance and Correlation Risk in Stock Returns

Cosemans, Mathijs - 2017

This paper studies the pricing of long and short run variance and correlation risk. The predictive power of the market … variance risk premium for returns is driven by the correlation risk premium and the systematic part of individual variance … volatility and correlation are priced. Both long and short run volatility and correlation factors have explanatory power for …

Persistent link: https://www.econbiz.de/10012976032

The correlation puzzle : the interaction of bond and risk correlation

Bethke, Sebastian; Kempf, Alexander; Gehde-Trapp, Monika - 2013 - This version: August 7, 2013

Diversification benefits depend on the correlation between assets. Unfortunately, asset correlation increases when it … is most needed. We examine bond correlation using a broad sample of US corporate bonds. We find bond correlation to be … higher during the financial crisis in 2008. Increased bond correlation results from higher correlation between corporate bond …

Persistent link: https://www.econbiz.de/10009777926

Beta risk in the cross-section of equities

Boloorforoosh, Ali; Christoffersen, Peter F.; Fournier, … - 2017

We develop a conditional capital asset pricing model in continuous-time that allows for stochastic beta exposure. When beta co-moves with market variance and the stochastic discount factor (SDF), beta risk is priced, and the expected return on a stock deviates from the security market line. The...

Persistent link: https://www.econbiz.de/10011646407

International Stock Return Predictability : The Role of U.S. Volatility Risk

Deng, Yizhe; Jiang, Fuwei; Wang, Yunqi; Zhou, Ti - 2022

This paper studies the intertemporal relation between U.S. volatility risk and international equity risk premia. We show that a common volatility risk factor constructed from the option-implied U.S. forward variances positively and significantly predicts future stock market returns of the...

Persistent link: https://www.econbiz.de/10014236052

Portfolio Diversification using Cryptocurrency

S, Padmavarthini - 2021

This paper aims to find the effectiveness of Cryptocurrency on well-formed portfolio with assets like Commodities, Exchange Traded Fund (ETFs), Stock assets and currency value of INR. There are several ways to determine the effectiveness in diversification. In this paper we use SOLVER, Modern...

Persistent link: https://www.econbiz.de/10013235837

Asset co-movements : features and challenges

Gospodinov, Nikolaj - 2017

This paper documents and characterizes the time-varying structure of U.S. and international asset co-movements. Although some of the time variation could be genuine, the sampling uncertainty and time series properties of the series can distort significantly the underlying signal dynamics. We...

Persistent link: https://www.econbiz.de/10011771615

The Determinants of Stock and Bond Return Comovements

Baele, Lieven - 2011

We study the economic sources of stock-bond return comovement and its time variation using a dynamic factor model. We identify the economic factors employing structural and non-structural vector autoregressive models for economic state variables such as interest rates, (expected) inflation,...

Persistent link: https://www.econbiz.de/10013132852

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