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Determinants of the time varying risk premia

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  • Pornpinun Chantapacdepong

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    Abstract

    This paper generates monthly risk premia data using zero coupon government treasury bills for 43 countries over the period of 1994-2006. The measure of risk premia is based on the ARCH-in-Mean (ARCH-M) model introduced by Engle, Lilien and Robins (1987). We show that the risk premia are time varying and also vary considerably across sample countries. Countries with better financial development and higher income generally have lower risk premia of government assets. This study also examines the macroeconomic and political determinants of the risk premia by using cross-section and dynamic panel regression analyses. The results show that the risk premia are significantly affected by macroeconomic circumstances, especially economic growth and the real e¤ective exchange rate. The results are robust across the majority of countries in our study.

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    File URL: http://www.efm.bris.ac.uk/economics/working_papers/pdffiles/dp07597.pdf
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    Bibliographic Info

    Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 07/597.

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    Length: 96 pages
    Date of creation: Mar 2007
    Date of revision:
    Handle: RePEc:bri:uobdis:07/597

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    Related research

    Keywords: ARCH-in-Mean; term structure of interest rates; risk premium; dynamic panel regression analysis.;

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