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SUMMARY:The Cumulant Risk Premium
DTSTART:20230314T120000
DTEND:20230314T130000
DTSTAMP:20260510T053447Z
UID:c3cce80081ac572d5015275a22aa5ec01c5d26016d20801be866310f
CATEGORIES:Conferences - Seminars
DESCRIPTION:Karamfil Todorov\, Bank for International Settlements\nWe deve
 lop a novel methodology to measure the risk premium of higher-order cumula
 nts (closely related to the moments of a distribution) based on assets sat
 isfying a single-factor setting. We show that single-factor linear pricing
  works only if the difference between physical and risk-neutral cumulants\
 , which we call the cumulant risk premium (CRP)\, is zero. To illustrate o
 ur approach empirically\, we study leveraged ETFs\, which are assets with 
 constant betas and exposure to a single factor only. We show that the CRP 
 is different from zero across asset classes: equities\, bonds\, commoditie
 s\, currencies\, and volatility. We quantify the even-order CRP by develop
 ing a simple strategy of shorting ETFs with opposite betas. The strategy m
 imics liquidity provision\, earns Sharpe ratios above one\, and can be use
 d as a simple gauge of global market stress in real time. Our results have
  implications not only for factor models but also for portfolio theory\, m
 omentum strategies\, option pricing\, hedge funds\, and leverage in genera
 l.\n\nPaper
LOCATION:UniL Campus\, Room Extra 126
STATUS:CONFIRMED
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