In a Lucas orchard with heterogeneous beliefs, we study the link between market-wide uncertainty, difference of opinionsand co-movement of stock returns. We show that this link plays an important role in explaining the dynamics of equilibriumvolatility and correlation risk premia. In our...

Using a novel dataset on correlation swaps, we study the relation between correlation risk, hedge fund characteristics and their risk-return profile. We find that hedge funds' ability to create market neutral returns is often associated with a significant exposure to correlation risk, which...

Using a novel dataset on correlation swaps, we study the relation between correlation risk, hedge fund characteristics and their risk-return profile. We find that hedge funds' ability to create market neutral returns is often associated with a significant exposure to correlation risk, which...

We document that the cross-sectional dispersion of conditional FX correlation is countercyclical and that currencies that perform badly (well) during periods of high dispersion yield high (low) average excess returns. We also find a negative cross-sectional association between average FX...

We develop a new completely affine model of the term structure of interest rates, in which the statevariables evolve as a matrix-valued process of stochastically correlated factors. This setting grants a newelement of flexibility in the simultaneous modeling of stochastic volatilities and...

In this paper we solve an intertemporal portfolio problem with correlation risk, using a new approach for the simultaneous modeling of stochastic correlation and volatility. The solutions of the model are in closed form and include an optimal portfolio demand for hedging correlation risk. We...