Volatility Carry Strategies Across Global Asset Classes

This article examines whether volatility carry predicts volatility risk premia across global asset classes. Using forward volatility agreements and volatility swaps, we construct cross-sectional strategies that buy high-carry assets and short low-carry assets across equities, currencies, fixed income, and commodities. These strategies generate positive excess returns and strong Sharpe ratios, especially in diversified multi-asset portfolios. Timing strategies based on volatility carry also produce significant alpha. After allowing for transaction costs, the most robust results are obtained for volatility swap strategies; forward volatility agreement strategies are more affected by trading frictions. The evidence suggests that volatility carry is a useful signal for systematic volatility investing, but its practical value depends on the instrument used and on implementation costs.