The slope of the implied volatility term structure is positively related to future option returns. We rank firms based on the slope of the volatility term structure and analyze the returns for straddle portfolios. Straddle portfolios with high slopes of the volatility term structure outperform...

We estimate the nondefault component of corporate bond yield spreads and examine its relationship with bond liquidity. We measure bond liquidity using intraday transactions data and estimate the default component using the term structure of credit default swaps (CDS) spreads. With swap rate as...

This paper investigates whether ETF returns lead the returns of underlying bonds and similar style bond funds. Bond prices are often stale due to their lack of liquidity, and price discovery may occur in ETFs and then in underlying bonds. As predicted, we find that ETF returns predict its own...

Based on a reduced-form model of credit risk, we explore mispricing in the CDS spreads of North American companies and its economic content. Specifically, we develop a trading strategy using the model to trade out of sample market-neutral portfolios across the term structure of CDS contracts....

Interest rate variance risk premium (IRVRP), the difference between implied and realized variances of interest rates, emerges as a strong predictor of Treasury bond returns of maturities ranging between one and ten years for return horizons up to six months. IRVRP is not subsumed by other...

We conduct an empirical analysis of the term structure in the volatility risk premium in the fixed income market by constructing long-short combinations of two at-the-money straddles for the four major swaption markets (USD, JPY, EUR and GBP). Our findings are consistent with a concave,...

We seek to reconcile the debate about the price effect of risk-neutral skewness (RNS) on stocks. We document positive predictability from short-term skewness, consistent with informed-trading demand, and negative predictability from long-term skewness, consistent with skewness preference. A term...

The study proposes an arbitrage-free methodology of VIX term structure modeling that is tailored to handle the most actively traded VIX options. Under the model, the evolution of future VIX is completely determined by the volatility function of forward VIX squared normalized by VIX futures...

Implicit in interest rate derivatives are Arrow-Debreu prices (or state price densities, SPDs) that contain fundamental information for risk and portfolio management in interest rate markets. To extract such information from interest rate derivatives, we propose a non-parametric method to...

We study the effect of a bond's place in its issuer's maturity structure on credit risk. Using a structural model as motivation, we argue that bonds due relatively late in their issuers' maturity structure have greater credit risk than do bonds due relatively early. Empirically, we find robust...