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Understanding Short and Long-Run Risk Premia

Buraschi, Andrea - 2013

This paper studies the predictability of S&P500 returns using short term risk premia as a conditioning variable. We construct dividend prices using futures data and identify short term risk premia by projecting excess returns of dividend claims on their lagged prices. Regression results for...

Persistent link: https://www.econbiz.de/10013091355

Dividend Risk and the Cross-Section of Equity Risk Premia

Picca, Antonio - 2014

I study a novel data set of short-term dividend futures contracts for individual stocks. I combine this data with dividend forecasts from equity research analysts to construct a model-free measure of short-term equity risk premia. I provide the first description of the cross-section of risk...

Persistent link: https://www.econbiz.de/10013043334

Modeling Conditional Factor Risk Premia Implied by Index Option Returns

Fournier, Mathieu; Jacobs, Kris; Orłowski, Piotr - 2021

We propose a novel factor model for option returns. Option exposures are estimated nonparametrically and factor risk premia can vary nonlinearly with states. The model is estimated using regressions, with minimal assumptions on factor and option return dynamics. Using index options, we...

Persistent link: https://www.econbiz.de/10013213854

Beta risk in the cross-section of equities

Boloorforoosh, Ali; Christoffersen, Peter F.; Fournier, … - 2017

We develop a conditional capital asset pricing model in continuous-time that allows for stochastic beta exposure. When beta co-moves with market variance and the stochastic discount factor (SDF), beta risk is priced, and the expected return on a stock deviates from the security market line. The...

Persistent link: https://www.econbiz.de/10011646407

Detecting Arbitrage in the Foreign Exchange Market

Cui, Zhenyu - 2018

) arbitrage opportunities among spot currency exchange rates in a foreign exchange market. We obtain sufficient conditions for … excluding the triangular arbitrage opportunities in a market with or without market frictions, i.e. transaction costs. Then we … propose a very efficient computational approach not only to detect triangular arbitrage opportunities in real time but also to …

Persistent link: https://www.econbiz.de/10012921244

The contribution of frictions to expected returns

Hirakiy, Kazuhiro; Skiadopoulos, George - 2018

We derive a model-free option-based formula to estimate the contribution of market frictions to expected returns (CFER) within an asset pricing setting. We estimate CFER for the U.S. optionable stocks. We document that CFER is sizable, it predicts stock returns and it subsumes the effect of...

Persistent link: https://www.econbiz.de/10011932555

Toxic arbitrage

Foucault, Thierry; Kozhan, Roman; Tham, Wing Wah - 2015

Short lived arbitrage opportunities arise when prices adjust with a lag to new information. They are toxic because they … expose dealers to the risk of trading at stale quotes. Hence, theory implies that more frequent toxic arbitrage opportunities … triangular arbitrage. As predicted, illiquidity is higher on days when the fraction of toxic arbitrage opportunities and …

Persistent link: https://www.econbiz.de/10010499534

Levered Noise and the Limits of Arbitrage Pricing : Implications for the Term Structure of Equity Risk Premia

Boguth, Oliver - 2019

We show theoretically and empirically that no-arbitrage pricing magnifies the importance of noise when replication …

Persistent link: https://www.econbiz.de/10012905818

Systematic consumption risk in currency returns

Hoffmann, Mathias; Suter, Rahel - 2013

We sort currencies by countries' consumption growth over the past four quarters. Currency portfolios of countries experiencing consumption booms have higher Sharpe ratios than those of countries going through a consumption-based recession. A carry strategy that goes short in countries that are...

Persistent link: https://www.econbiz.de/10009752999

The pricing of unexpected volatility in the currency market

Lu, Wenna; Copeland, Laurence S.; Xu, Yongdeng - 2021

Many recent papers have investigated the role played by volatility in determining the cross-section of currency returns. This paper employs two time-varying factor models: a threshold model and a Markov-switching model to price the excess returns from the currency carry trade. We show that the...

Persistent link: https://www.econbiz.de/10012591966

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