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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

Understanding Short and Long-Run Risk Premia

Buraschi, Andrea - 2013

This paper studies the predictability of S&P500 returns using short term risk premia as a conditioning variable. We construct dividend prices using futures data and identify short term risk premia by projecting excess returns of dividend claims on their lagged prices. Regression results for...

Persistent link: https://www.econbiz.de/10013091355

The Role of Financial Investors in Determining the Commodity Futures Risk Premium

Isleimeyyeh, Mohammad - 2020

determined by hedging pressure, stock market returns, and the commodity-equity correlation. Empirically, the effect of the stock …

Persistent link: https://www.econbiz.de/10012851801

Biases in CDS Spreads after the CDS Big Bang

Wang, Xinjie - 2020

The ISDA CDS standard model assumes a single flat hazard rate (default intensity) rather than a term structure of hazard rates. This assumption introduces biases into CDS spreads for empirical research after the CDS Big Bang. This paper is the first to document the biases and provide a simple...

Persistent link: https://www.econbiz.de/10012845187

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