The correlation risk premium: international evidence

Gonçalo Faria, Robert Kosowski, Tianyu Wang

Research output: Contribution to journalArticlepeer-review

Abstract

In this paper we carry out a cross-country analysis of the correlation risk premium. We examine the statistical properties of the implied and realized correlation in European equity markets and relate the resulting premium to US equity market correlation risk and a global correlation risk premium. We find evidence of strong co-movement of correlation risk premiums in European and US equity markets. Our results support the existence of a strong empirical relationship between the global correlation risk premium and international equity market option returns. We document the dependence of the correlation risk premium on macroeconomic uncertainty and related variables.
Original languageEnglish
Article number106399
Number of pages14
JournalJournal of Banking and Finance
Volume136
DOIs
Publication statusPublished - Mar 2022

Keywords

  • Correlation risk premium
  • Implied correlation
  • International equity options
  • Realized correlation
  • Variance risk premium

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