Jun 09, 2016
from 01:00 PM to 02:00 PM
|Where||Castle Teaching Room, Level 4, Cambridge Judge Business School|
|Contact Name||Kat Ndrepepaj|
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Jason Cen is a Research Associate in Finance, MSc (LSE), PhD (City University).
Switching Risk Off: FX Correlations and Risk Premia
The recently popularized phrase "risk-off" refers to a change in risk preferences and the effect on asset prices of the associated portfolio rebalancing. We identify these episodes as a switch to a polarized correlation regime of currency returns. These risk-off transitions are relatively infrequent but noticeably increasing over time. They are persistent and associated with geopolitical events. Finally, risk-off switches are unrelated to changes in macroeconomic fundamentals and to volatility or average correlation shocks. Risk-off switches have very significant spill-over to the returns of broad asset classes and active trading strategies, with risky and safe asset returns being penalized and favored, respectively. We document that risk-off switches are associated with significant changes in the positions of professional investors across different financial markets, suggesting that the return evidence is consistent with price pressure induced by portfolio rebalancing.
Jason works in the area of international finance. Specifically, he is now working on a project that investigates the properties of foreign exchange market liquidity. Prior to joining Cambridge Judge Business School, Jason had been studying for a PhD in Finance at Cass Business School in London where he had worked as a research assistant. Previous research includes currency trading strategies in the interwar period, the impact of risk-on risk-off transitions on the financial landscape, and predictability of international asset returns.
Empirical asset pricing; foreign exchange markets; asset management. Jason Cen is a member of the Finance & Accounting subject group.