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Equities

What is equity volatility risk premium and its benefits?

By Alexson Lee
Senior Portfolio Manager Sydney, Australia

While investors tend to be familiar with risk premium concepts related to equity, credit and liquidity, the concept of volatility risk premium tends to be less acknowledged. Volatility trading instruments and products can be traded within several asset classes such as equities, bonds and currencies. In addition, their trading volumes have grown significantly over the past 30 years.

This paper explains the fundamental rationale behind volatility risk premia, the investment outcomes sought from extracting equity volatility risk premium, and shows how the volatility risk premium extraction can be used to improve the investment outcome of a typical diversified fund.

Insight Paper

To read this paper in full, please download

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Alexson Lee, Senior Portfolio Manager
  • Covid-19
  • Diversification
  • Education
  • Equities
  • Institutional Edition
  • Investment Insights
  • Multi-Asset
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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

 

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