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Time-varying state variable risk premia in the ICAPM

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Resumo:We find that the relation between state variables, such as the t-bill rate and term spread, and consumption growth is time-varying. In the cross-section of U.S. stocks, risk premia for exposure to state variables vary over time accordingly. When a state variable predicts consumption strongly relative to its own history, its annualized risk premium increases by 6% (0.4 in Sharpe ratio). This effect implies that risk premia can switch signs and are increasing in the conditional variance of the state variable. These common drivers of time-varying risk premia are consistent with the Intertemporal CAPM. Benchmark factors contain the same conditional expected return effects as state variable risk premia.
Autores principais:Barroso, Pedro
Outros Autores:Boons, Martijn; Karehnke, Paul
Assunto:Conditional asset pricing models Consumption predictability Intertemporal CAPM State variables Time-varying equity risk premia Accounting Finance Economics and Econometrics Strategy and Management
Ano:2021
País:Portugal
Tipo de documento:artigo
Tipo de acesso:acesso aberto
Instituição associada:Universidade Nova de Lisboa
Idioma:inglês
Origem:Repositório Institucional da UNL

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