Dynamics of Subjective Risk Premia

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Detail(s)

Original languageEnglish
Article number103713
Journal / PublicationJournal of Financial Economics
Volume150
Issue number2
Online published16 Sept 2023
Publication statusPublished - Nov 2023

Abstract

We examine subjective risk premia implied by return expectations of individual investors and professionals for portfolios of stocks, bonds, currencies, and commodity futures. While in-sample predictive regressions with realized excess returns suggest that objective risk premia vary countercyclically with business-cycle and asset-valuation measures, subjective risk premia extracted from survey data are largely acyclical. Out-of-sample forecasts of excess returns exhibit a similar lack of cyclicality, which suggests that investors' learning of forecasting relationships in real time may help explain the cyclicality gap. There is a subjective risk-return tradeoff, with subjective risk premia increasing in subjective perceptions of risk quantity. © 2023 Elsevier B.V. All rights reserved.

Research Area(s)

  • Return expectations, Subjective risk premia, Return predictability, Survey data

Citation Format(s)

Dynamics of Subjective Risk Premia. / Nagel, Stefan; Xu, Zhengyang.
In: Journal of Financial Economics, Vol. 150, No. 2, 103713, 11.2023.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review