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...

The downside variance risk premium

The variance risk premium of an asset is the difference between options-implied and actual expected return variation. It can be viewed as a price...

The 1×1 of risk perception measures

There are two reasons why macro traders watch risk perceptions. First, sudden spikes often trigger subsequent flows and macroeconomic change. Second, implausibly high or...

Fear of drawdown

Experimental research suggests that probability of outright loss rather than volatility is the key driver of investor risk perceptions. Moreover, fear of drawdown causes...

Covered interest parity: breakdowns and opportunities

Since the great financial crisis conventional measures of the covered interest parity across currencies have regularly broken down. Two developments seem to explain this....

Global market portfolio: construction and performance

A representative market portfolio can be built as the capitalization-weighted average of global equity, real estate and bonds. From 1960 to 2015 such a...

Cross-asset carry: an introduction

Carry can be defined as return for unchanged market prices and is easy to calculate in real time across assets. Carry strategies often reap...

Explaining FX forward bias

Forward bias in foreign exchange markets means that a positive interest rate differential precedes currency appreciation. It has been an empirical regularity in developed...

FX strategies based on quanto contract information

Quantos are derivatives that settle in currencies different from the denomination of the underlying contract. Therefore, quanto index contracts for the S&P 500 provide...

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