Exploiting Overestimated Volatility Risk Premium: A Contrarian ETF Trading Strategy
“Results show that leveraging an overestimated VRP significantly enhances portfolio performance, with the strategy yielding an average annual return of 20.79% and a Sharpe ratio of 1.4, outperforming traditional benchmarks.”
AssetVolatility and optionsETFs
StrategyVolatility risk premiumshort-term reversal
FrequencyAnnual
ClaimSharpe ratioexcess return
Missing from abstract: benchmark, out-of-sample test, costs, multiple testing, universe
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The paper's neighbourhoodVolatility risk premium by year
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