Time-Varying Risk Premia and the Output Gap

Abstract A factor stochastic volatility model estimates the common component to output gap estimates produced by the staff of the Federal Reserve, its time-varying volatility, and time-varying, horizon-specific forecast uncertainty. The output gap estimates are uncertain even well after the fact. Nevertheless, the common component is clearly procyclical, and positive innovations to the common component produce movements in macroeconomic variables consistent with an increase in aggregate demand. Heightened macroeconomic uncertainty, as measured by the common component's volatility, leads to persistently negative economic responses.

Download Full-text

Expectations Puzzle, Time-varying Risk Premia, and Dynamic Models of the Term Structure

SSRN Electronic Journal ◽

10.2139/ssrn.242607 ◽

2000 ◽

Cited By ~ 3

Author(s):

Qiang Dai ◽

Kenneth J. Singleton

Keyword(s):

Term Structure ◽

Dynamic Models ◽

Risk Premia ◽

Time Varying

Download Full-text

Analysis of Time Varying Exchange Rate Risk Premia

Advances in Quantitative Asset Management - Studies in Computational Finance ◽

10.1007/978-1-4615-4389-3_11 ◽

2000 ◽

pp. 255-273 ◽

Cited By ~ 1

Author(s):

Ramaprasad Bhar ◽

Carl Chiarella

Keyword(s):

Exchange Rate ◽

Risk Premia ◽

Exchange Rate Risk ◽

Time Varying ◽

Rate Risk

Download Full-text

Exchange Rates and Liquidity Risk

Journal of Advanced Studies in Finance ◽

10.14505//jasf.v11.2(22).08 ◽

2020 ◽

Vol 11 (2) ◽

pp. 159

Author(s):

Martin D.D. EVANS

Keyword(s):

Risk Factors ◽

Exchange Rates ◽

Foreign Exchange ◽

Foreign Currency ◽

Liquidity Risk ◽

Risk Premia ◽

Time Varying ◽

Foreign Exchange Risk ◽

Exchange Risk

I use Forex trading data to study how risks associated with the lack of liquidity contribute to the dynamics of 17 spot exchange rates through their time-varying contributions to risk premia. I find that liquidity risk matters. All the foreign exchange risk premia compensate investors for exposure to liquidity risk; and, for many currencies, exposure to liquidity risk appears to be more important than exposure to the traditional carry and momentum risk factors. I also find that variations in the price of liquidity risk make economically important contributions to the behavior of individual foreign currency returns: they account for approximately 34%, on average, of the variability in currency returns compared to the contribution of approximately 8% from the prices of carry and momentum risk.

Download Full-text