Arbeitspapier
Asymmetries in Risk Premia, Macroeconomic Uncertainty and Business Cycles
A large literature suggests that the expected equity risk premium is countercyclical. Using a variety of different measures for this risk premium, we document that it also exhibits growth asymmetry, i.e. the risk premium rises sharply in recessions and declines much more gradually during the following recoveries. We show that a model with recursive preferences, in which agents cannot perfectly observe the state of current productivity, can generate the observed asymmetry in the risk premium. Key for this result are endogenous fluctuations in uncertainty which induce procyclical variations in agent's nowcast accuracy. In addition to matching moments of the risk premium, the model is also successful in generating the growth asymmetry in macroeconomic aggregates observed in the data, and in matching the cyclical relation between quantities and the risk premium.
- Language
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Englisch
- Bibliographic citation
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Series: CESifo Working Paper ; No. 7959
- Classification
-
Wirtschaft
Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data)
Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
General Financial Markets: General (includes Measurement and Data)
- Subject
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risk premium
business cycles
Bayesian learning
asymmetry
uncertainty
nowcasting
- Event
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Geistige Schöpfung
- (who)
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Görtz, Christoph
Yeromonahos, Mallory
- Event
-
Veröffentlichung
- (who)
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Center for Economic Studies and ifo Institute (CESifo)
- (where)
-
Munich
- (when)
-
2019
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Görtz, Christoph
- Yeromonahos, Mallory
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2019
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