How Important Is Intertemporal Risk for Asset Allocation?
AbstractWe test a conditional asset pricing model that includes long-term interest rate risk as a priced factor for four asset classes—large stocks, small stocks, and long-term Treasury and corporate bonds. We find that the interest risk premium is the main component of the risk premiums for bond portfolios, while representing a small fraction of total risk premiums for equities. This suggests that stocks, especially small stocks, are hedges against variations in the investment opportunity set. We estimate that, at average market volatility levels, investors earn annual premiums between 3.6% during expansions and 5.8% during recessions for bearing intertemporal risk alone.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 79 (2006)
Issue (Month): 4 (July)
Contact details of provider:
Web page: http://www.journals.uchicago.edu/JB/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Maio, Paulo, 2013. "Return decomposition and the Intertemporal CAPM," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(12), pages 4958-4972.
- Maio, Paulo & Santa-Clara, Pedro, 2012. "Multifactor models and their consistency with the ICAPM," Journal of Financial Economics, Elsevier, Elsevier, vol. 106(3), pages 586-613.
- Mazzotta, Stefano, 2008. "How important is asymmetric covariance for the risk premium of international assets?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(8), pages 1636-1647, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division).
If references are entirely missing, you can add them using this form.