The Correlation Risk Premium: International Evidence
38 Pages Posted: 26 Nov 2018
Date Written: October 30, 2018
In this paper we carry out the first 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 the 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 global correlation risk premium that is priced in international equity option markets. We document the dependence of the correlation risk premium on macroeconomic policy uncertainty and related variables.
Keywords: Correlation Risk Premium, International Equity Option Markets, Global Correlation Risk
JEL Classification: G10, G12, G13
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