Macro Factors and Time-Varying Risk Premia in UK Financial Markets

Dongna Zhang

Macro Factors and Time-Varying Risk Premia in UK Financial Markets

Dongna Zhang

TUIBS Finance, Performance & Marketing

Research output: Contribution to conference › Paper › peer-review

Abstract

This paper estimates a dynamic asset pricing model that jointly prices excess returns on stocks and government bonds in the UK. This model fits the cross section of test assets on average as well as providing time-varying countercyclical risk premiums. The results indicate that the equity market factor, level and slope of the yield curve are priced in both stock and bond returns. Inflations and the output gap are informative in predicting asset returns at business cycle frequencies. Risk
premiums are found to be substantially higher and more volatile during economic
recessions.

Original language	English
Publication status	Accepted/In press - 15 Feb 2018
Event	Royal Economic Society Conference 2018 - Duration: 26 Mar 2018 → 28 Mar 2018

Conference

Conference	Royal Economic Society Conference 2018
Period	26/03/18 → 28/03/18

Cite this

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title = "Macro Factors and Time-Varying Risk Premia in UK Financial Markets",

abstract = "This paper estimates a dynamic asset pricing model that jointly prices excess returns on stocks and government bonds in the UK. This model fits the cross section of test assets on average as well as providing time-varying countercyclical risk premiums. The results indicate that the equity market factor, level and slope of the yield curve are priced in both stock and bond returns. Inflations and the output gap are informative in predicting asset returns at business cycle frequencies. Riskpremiums are found to be substantially higher and more volatile during economicrecessions.",

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N2 - This paper estimates a dynamic asset pricing model that jointly prices excess returns on stocks and government bonds in the UK. This model fits the cross section of test assets on average as well as providing time-varying countercyclical risk premiums. The results indicate that the equity market factor, level and slope of the yield curve are priced in both stock and bond returns. Inflations and the output gap are informative in predicting asset returns at business cycle frequencies. Riskpremiums are found to be substantially higher and more volatile during economicrecessions.

AB - This paper estimates a dynamic asset pricing model that jointly prices excess returns on stocks and government bonds in the UK. This model fits the cross section of test assets on average as well as providing time-varying countercyclical risk premiums. The results indicate that the equity market factor, level and slope of the yield curve are priced in both stock and bond returns. Inflations and the output gap are informative in predicting asset returns at business cycle frequencies. Riskpremiums are found to be substantially higher and more volatile during economicrecessions.

M3 - Paper

T2 - Royal Economic Society Conference 2018

Y2 - 26 March 2018 through 28 March 2018

ER -

Macro Factors and Time-Varying Risk Premia in UK Financial Markets

Abstract

Conference

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