Seminario académico de Finanzas y Contabilidad: “The Cross-Section of Currency Volatility Premia”

11 de Agosto, 13:00 horas. Sala P307.

Expone: Roman Kozhan.

Abstract:
We identify a global risk factor in the cross-section of implied volatility returns in currency markets. A zero-cost strategy that buys forward volatility agreements with downward sloping implied volatility curves and sells those with upward slopes – volatility carry strategy – generates significant excess returns. The covariation with volatility carry returns fully explains the cross-sectional variation of our slope-sorted portfolios. The lower the slope, the more the forward volatility agreement is exposed to volatility carry risk. We provide evidence that exposure to volatility carry risk is related to squared differences in growth between the US and the local economy.