Earnings yields, equity carry and risk premia
Forward earnings yields and equity carry are plausible indicators of risk premia embedded in equity index futures prices. Data for a panel of 25...
What variance swaps tell us about risk premia
Variance swaps are over-the-counter derivatives that exchange payments related to future realized price variance against fixed rates. Variance swaps help estimating term structures for...
The importance of volatility of volatility
Options-implied volatility of U.S. equity prices is measured by the volatility index, VIX. Options-implied volatility of volatility is measured by the volatility-of-volatility index, VVIX....
FX carry strategies (part 2): Hedging
There is often a strong case for hedging FX carry trades against unrelated global market factors. It is usually not difficult to hedge currency...
FX carry strategies (part 1)
FX forward-implied carry is a valid basis for investment strategies because it is related to policy subsidies and risk premia. However, it also contains...
Finding implicit subsidies in financial markets
Implicit subsidies in financial markets can be defined as expected returns over and above the risk free rate and conventional risk premia. While conventional...
Commodity pricing
A new paper combines two key aspects of commodity pricing: a rational pricing model based on the present value of future convenience yields...
Fixed income carry as trading signal
Empirical evidence for 27 markets suggests that carry on interest rate swaps has been positively correlated with subsequent returns for the past two decades....
The correlation risk premium
The correlation risk premium is a premium for uncertainty of future correlation of securities among each other or with a benchmark. A rise in...
Gold: risk premium and expected return
An empirical paper suggests that the risk premium and excess return on gold have been time-varying and predictable, also out-of-sample. The key predictors have...
RECENT ARTICLES
How systemic financial risk is measured
Public institutions have developed a wide range of methods to track systemic financial risk. What most of them have in common is reliance on...
How convenience yields have compressed real interest rates
Real interest rates on ‘safe’ assets such as high-quality government bonds had been stationary around 2% for more than a century until the 1980s....
Variance term premia
Variance term premia are surcharges on traded volatility that compensate for bearing volatility risk in respect to underlying asset prices over different forward horizons....