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 …

portfolios. This paper proposes a new estimation and inference framework for these option-implied term structures that addresses … nonparametric. New confidence intervals quantify the term structure estimation error. The framework is applied to estimating the …

correlation changes (affecting diversification benefits) is priced. We propose a direct and intuitive test by comparing option ….0% for DJ30) and realized correlations (32.5% and 35.5%, respectively) is direct evidence of a large negative correlation … to the high price of correlation risk. Finally, we provide evidence that option-implied correlations have remarkable …

Ex ante (expected) average equity market correlation is linked to the differential correlation dynamics of growth and … existence of a homogeneous correlation among stocks with similar growth characteristics, depending on the prevailing … link to growth options and the value premium, implied correlation serves as a leading procyclical state variable. Value …

Implied correlation and variance risk premium stand out in predicting market returns. However, while the predictive … ability of implied correlation lasts for up to a year, the variance risk premium predicts market returns only for one quarter … ahead. Contrary to the accepted view, implied correlation predicts the market return not through a diversification risk …