The Time Variation in Risk Appetite and Uncertainty
Author | : Geert Bekaert |
Publisher | : |
Total Pages | : 76 |
Release | : 2019 |
ISBN-10 | : OCLC:1090540222 |
ISBN-13 | : |
Rating | : 4/5 (22 Downloads) |
Download or read book The Time Variation in Risk Appetite and Uncertainty written by Geert Bekaert and published by . This book was released on 2019 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop measures of time-varying risk aversion and economic uncertainty that are calculated from financial variables at high frequencies. We formulate a dynamic no-arbitrage asset pricing model for equities and corporate bonds. The joint dynamics among asset-specific cash flows, macroeconomic fundamentals and risk aversion feature heteroskedasticity and non-Gaussianity. Variance risk premiums on equity are very informative about risk aversion, whereas credit spreads and corporate bond volatility are highly correlated with economic uncertainty. Model-implied risk premiums outperform standard instruments for predicting excess returns on equity and corporate bonds. A financial proxy to our economic uncertainty predicts output growth significantly negatively.