Download or read book The Cross Sectional Variation of Skewness Risk Premia written by Kai Wang and published by . This book was released on 2018 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper estimates skewness risk premia on individual stocks using synthetic skew swaps and shows that there is a considerably large variation of monthly realized skewness risk premia across a representative set of portfolios which are sorted by skewness risk premium payoffs in the prior period. It then focuses on investigating the determinants of such cross-sectional variation and documents that consumption risk does not seem to be priced with respect to skewness risk premia. The market excess return and, especially, the market variance risk premium are shown to be key risk factors that drive the cross-sectional variation of skewness risk premium payoffs. The market variance risk premium factor is significantly priced with respect to skewness risk premia even if I allow for potential model misspecification. The success of the market variance risk premium factor can be potentially explained by the very different risk exposures of skewness risk premium-based portfolios to the risk proxied by the market variance risk premium. I further show that the higher the exposure of the skewness risk premium-based portfolio to such a risk, the larger skewness risk premium payoff is required in the cross section.
Download or read book Skewness Risk Premium written by Thorsten Lehnert and published by . This book was released on 2013 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Empirical Asset Pricing written by Turan G. Bali and published by John Wiley & Sons. This book was released on 2016-02-26 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: “Bali, Engle, and Murray have produced a highly accessible introduction to the techniques and evidence of modern empirical asset pricing. This book should be read and absorbed by every serious student of the field, academic and professional.” Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago and 2013 Nobel Laureate in Economic Sciences “The empirical analysis of the cross-section of stock returns is a monumental achievement of half a century of finance research. Both the established facts and the methods used to discover them have subtle complexities that can mislead casual observers and novice researchers. Bali, Engle, and Murray’s clear and careful guide to these issues provides a firm foundation for future discoveries.” John Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University “Bali, Engle, and Murray provide clear and accessible descriptions of many of the most important empirical techniques and results in asset pricing.” Kenneth R. French, Roth Family Distinguished Professor of Finance, Tuck School of Business, Dartmouth College “This exciting new book presents a thorough review of what we know about the cross-section of stock returns. Given its comprehensive nature, systematic approach, and easy-to-understand language, the book is a valuable resource for any introductory PhD class in empirical asset pricing.” Lubos Pastor, Charles P. McQuaid Professor of Finance, University of Chicago Empirical Asset Pricing: The Cross Section of Stock Returns is a comprehensive overview of the most important findings of empirical asset pricing research. The book begins with thorough expositions of the most prevalent econometric techniques with in-depth discussions of the implementation and interpretation of results illustrated through detailed examples. The second half of the book applies these techniques to demonstrate the most salient patterns observed in stock returns. The phenomena documented form the basis for a range of investment strategies as well as the foundations of contemporary empirical asset pricing research. Empirical Asset Pricing: The Cross Section of Stock Returns also includes: Discussions on the driving forces behind the patterns observed in the stock market An extensive set of results that serve as a reference for practitioners and academics alike Numerous references to both contemporary and foundational research articles Empirical Asset Pricing: The Cross Section of Stock Returns is an ideal textbook for graduate-level courses in asset pricing and portfolio management. The book is also an indispensable reference for researchers and practitioners in finance and economics. Turan G. Bali, PhD, is the Robert Parker Chair Professor of Finance in the McDonough School of Business at Georgetown University. The recipient of the 2014 Jack Treynor prize, he is the coauthor of Mathematical Methods for Finance: Tools for Asset and Risk Management, also published by Wiley. Robert F. Engle, PhD, is the Michael Armellino Professor of Finance in the Stern School of Business at New York University. He is the 2003 Nobel Laureate in Economic Sciences, Director of the New York University Stern Volatility Institute, and co-founding President of the Society for Financial Econometrics. Scott Murray, PhD, is an Assistant Professor in the Department of Finance in the J. Mack Robinson College of Business at Georgia State University. He is the recipient of the 2014 Jack Treynor prize.
Download or read book The Skewness Risk Premium in Currency Markets written by Michael Broll and published by . This book was released on 2016 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the relationship between currency option's implied skewness and its future realized skewness, where the difference is known as the skewness risk premium (SRP). The SRP indicates whether investors pay a premium to be insured against future crash risk. Past investigations about implied and realized skewness within currency markets showed that both measures are loosely connected or even exhibit a negative relationship that cannot be rationalized by no-arbitrage arguments. Therefore, this paper studies time-series of future and option contract positions data in order to explain the disconnection in terms of investor's position-induced demand pressure. While demand pressures on options do not sufficiently contribute to the disconnection, there is evidence that, surprisingly, demand pressure in currency future markets have the power to explain this market anomaly. Furthermore, currency momentum also plays an important role, which leads to a strong cyclical demand for OTM calls in rising or OTM puts in declining markets. In order to exploit the disconnection of skewness, a simple skew swap trading strategy proposed by Schneider (2012) has been set up. The resulting skew swap returns are relatively high, but the return distribution is extremely fat-tailed. To appropriately compare different skew swap strategy returns, this paper proposes a Higher Moment Sharpe Ratio that also takes higher moments into account.
Download or read book The Skew Risk Premium in the Equity Index Market written by Roman Kozhan and published by . This book was released on 2019 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We measure the skew risk premium in the equity index market through the skew swap. We argue that just as variance swaps can be used to explore the relationship between the implied variance in option prices and realized variance, so too can skew swaps be used to explore the relationship between the skew in implied volatility and realized skew. Like the variance swap, the skew swap corresponds to a trading strategy, necessary to assess risk premia in a model-free way. We find that almost half of the implied volatility skew can be explained by the skew risk premium. We provide evidence that skew and variance premia are manifestations of the same underlying risk factor in the sense that strategies designed to exploit one of the risk premia but to hedge out the other make zero excess returns.
Download or read book Inside Volatility Arbitrage written by Alireza Javaheri and published by John Wiley & Sons. This book was released on 2011-08-24 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt: Today?s traders want to know when volatility is a sign that the sky is falling (and they should stay out of the market), and when it is a sign of a possible trading opportunity. Inside Volatility Arbitrage can help them do this. Author and financial expert Alireza Javaheri uses the classic approach to evaluating volatility -- time series and financial econometrics -- in a way that he believes is superior to methods presently used by market participants. He also suggests that there may be "skewness" trading opportunities that can be used to trade the markets more profitably. Filled with in-depth insight and expert advice, Inside Volatility Arbitrage will help traders discover when "skewness" may present valuable trading opportunities as well as why it can be so profitable.
Download or read book Time Varying Conditional Skewness and the Market Risk Premium written by Akhtar R. Siddique and published by . This book was released on 2005 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Single factor asset pricing models face two major hurdles: the problematic time-series properties of the ex ante market risk premium and the inability of the risk measure to account for a substantial degree of the cross-sectional variation of expected excess returns. We provide an explanation for the first failure using the following intuition: if investors know that the asset returns have conditional skewness given the information known today, the expected excess returns should include rewards for accepting skewness. We formalize this intuition with an asset pricing model which incorporates conditional skewness. We decompose the expected excess returns into components due to conditional variance and skewness. Our results show that conditional skewness is important and, when combined with the economy-wide reward for skewness, helps explain the time-variation of the ex ante market risk premiums. Conditional skewness has greater success in explaining the ex ante risk premium for the world portfolio than for the U.S. portfolio.
Download or read book Downside Variance Risk Premium written by Bruno Feunou and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Risk Premia written by Yves Lemperiere and published by . This book was released on 2014 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present extensive evidence that "Risk Premium" is strongly correlated with tail-risk skewness, but very little with volatility. We introduce a new, intuitive definition of skewness, and elicit a linear relationship between the Sharpe ratio of various risk premium strategies (Equity, Fama-French, FX Carry, short vol, bonds, credit) and their negative skewness. We find a clear exception to this rule: Trend Following (and perhaps the Fama-French "High minus Low"), that has positive skewness and positive excess return, suggesting that some strategies are not risk premia, but genuine market anomalies. Based on our results, we propose an objective criterion to assess the quality of a risk premium portfolio.
Download or read book Option Based Estimation of the Price of Co Skewness and Co Kurtosis Risk written by Peter Christoffersen and published by . This book was released on 2017 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that the prices of risk for factors that are nonlinear in the market return are readily obtained using index option prices. The price of co-skewness risk corresponds to the market variance risk premium, and the price of co-kurtosis risk corresponds to the market skewness risk premium. Option-based estimates of the prices of risk lead to reasonable values of the associated risk premia. An out-of-sample analysis of factor models with co-skewness and co-kurtosis risk indicates that the new estimates of the price of risk improve the models' performance compared to regression-based estimates.
Download or read book The Skewness Premium and the Asymmetric Volatility Puzzle written by Canlin Li and published by . This book was released on 2004 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses a general equilibrium model to study the source and reward of asymmetric volatility or skewness of market returns in an exchange economy. In particular, the dividend growth rate is modeled as a stochastic volatility process and the representative agent is characterized by Epstein-Zin preferences. The equilibrium equity premium, risk-free rate, and asymmetric volatility (measured by the negative correlation between the market return and its volatility) are derived endogenously. It is shown that the equity premium has three components: the first two components parallel those in the Intertemporal CAPM, while the last one is 'new'. It reflects the part of excess returns required by investors to take on the asymmetric volatility or negative skewness risk. The paper then uses the Efficient Method of Moments to estimate the stochastic volatility model of the dividend growth rate and uses the estimated process to study the equity premium, the skewness premium, the risk-free rate, and asymmetric volatility under various values of the risk aversion coefficient and elasticity of intertemporal substitution. It is shown that the skewness premium can be as high as 1.2% annually in real terms. However, under conventional levels of risk aversion and elasticity of intertemporal substitution, the asymmetric volatility generated by the model is much smaller than that observed in the data and hence results in the asymmetric volatility 'puzzle'
Download or read book Moment Risk Premia and the Cross Section of Stock Returns written by Richard D. F. Harris and published by . This book was released on 2018 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the determinants of moment risk premia (MRP) and their relationship with stock returns. Stocks with high beta, idiosyncratic volatility and maximum return are associated with a high variance risk premium (VRP). The skew risk premium (SRP) is mainly driven by return reversals, the maximum return and idiosyncratic skewness, while the kurtosis risk premium (KRP) is associated with all firm characteristics. We find that both the VRP and SRP are negatively related to stock returns, while the KRP has no relation with stock returns. However, the negative relation between the SRP and stock returns is robust to the inclusion of firm-level variables, while the VRP is not.
Download or read book The Equity Premium and the Volatility Spread written by Bruno Feunou and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Variance and Skew Risk Premiums for the Volatility Market written by José Da Fonseca and published by . This book was released on 2017 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We extract variance and skew risk premiums from volatility derivatives in a model-free way and analyze their relationships along with volatility index and equity index returns. These risk premiums can be synthesized through option trading strategies. Using a time series of option prices on the VIX, the most liquid volatility derivative market, we find that variance swap excess return can be partially explained by volatility index and equity index excess returns while these latter variables carry little information for the skew swap excess return. The results sharply contrast with those obtained for the equity index option market underlining very specific characteristics of the volatility derivative market.
Download or read book Risk Premium Spillovers Among Stock Markets written by Marinela Adriana Finta and published by . This book was released on 2018 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the volatility, skewness and kurtosis risk premium spillovers among U.S., U.K., German and Japanese stock markets. We define risk premia as the difference between risk-neutral and realized moments. Our findings highlight that during periods of stress and after 2014, cross-market and cross-moment spillovers increase, and this is mirrored by a decrease in within spillovers. We document strong bi-directional spillovers between skewness and kurtosis risk premia and emphasize the prominent role played by the volatility risk premium. Finally, we show that several macroeconomic and financial factors increase with the intensity of risk premium spillovers.
Download or read book Realized Skewness at High Frequency and the Link to a Conditional Market Premium written by Zhi Liu and published by . This book was released on 2014 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the asymptotic properties of an existing high frequency realized skewness measure and propose a more reliable new estimator which is robust to the microstructure noise at ultra-high frequency level. Asymptotic theory for the new estimator has been derived. Simulation example verifies the superior performance of the new estimator. We apply the new estimator with tick data of the S&P 500 index for forecasting one-month-ahead excess equity market returns in the U.S. from 1990-2011 and find robust and consistent result that realized skewness has significant forecastability both in-sample and out-of-sample. We also show that the new skewness measure plus the variance risk premium provides right decomposition for the skewness risk and it subsumes the market momentum effect in the short run. We thus provide valuable evidence that realized skewness has time series pricing ability in addition to cross sectional performance.
Download or read book Popularity A Bridge between Classical and Behavioral Finance written by Roger G. Ibbotson and published by CFA Institute Research Foundation. This book was released on 2018 with total page 128 pages. Available in PDF, EPUB and Kindle. Book excerpt: Classical and behavioral finance are often seen as being at odds, but the idea of “popularity” has been introduced as a way of reconciling the two approaches. Investors like or dislike various characteristics of securities for rational reasons (as in classical finance) or irrational reasons (as in behavioral finance), which makes the assets popular or unpopular. In the capital markets, popular (unpopular) securities trade at prices that are higher (lower) than they would be otherwise; hence, the shares may provide lower (higher) expected returns.This book builds on this idea and expands it in two major ways. First, it introduces a rigorous asset pricing model, the popularity asset pricing model (PAPM), which adds investor preferences for security characteristics other than the risk and expected return that are part of the capital asset pricing model. A major conclusion of the PAPM is that the expected return of any security is a linear function of not only its systematic risk (beta) but also of all security characteristics that investors care about. The other major contribution of the book is new empirical work that, while confirming the well-known premiums (such as size, value, and liquidity) in a popularity context, supports the popularity hypothesis on the basis of portfolios of stocks based on such characteristics as brand value, sustainable competitive advantage, and reputation. Popularity unifies the factors that affect price in classical finance with those that drive price in behavioral finance, thus creating a unifying theory or bridge between classical and behavioral finance.
