RT Journal Article
SR Electronic
T1 An Asset Class Characterization of the U.S. Equity Index Volatility Risk Premium
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 72
OP 84
DO 10.3905/jpm.2016.43.1.072
VO 43
IS 1
A1 William Fallon
A1 James Park
YR 2016
UL https://pm-research.com/content/43/1/72.abstract
AB The authors use a novel 32-year return series to study the risk, return, and predictability of a strategy that sells one-month S&P 500 variance swaps with fixed ex-ante tail risk. They find that unconditional short exposure in their sample is characterized primarily by two features: (1) a very high Sharpe ratio exceeding 1.2 and (2) a severe but infrequent crash risk. From a forecasting perspective, the authors find a generally lower premium following market sell-offs and crashes. However, they fail to find significant evidence linking returns to the level of either implied or realized volatility.TOPIC: Derivatives