The term structure of risk premia: new evidence from the financial crisis
AbstractThis study calibrates the term structure of risk premia before and during the 2007/2008 financial crisis using a new calibration approach based on credit default swaps. The risk premium term structure was flat before the crisis and downward sloping during the crisis. The instantaneous risk premium increased significantly during the crisis, whereas the long-run mean of the risk premium process was of the same magnitude before and during the crisis. These findings suggest that (marginal) investors have become more risk averse during the crisis. Investors were, however, well aware that risk premia will revert back to normal levels in the long run. JEL Classification: G12, G13
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1165.
Date of creation: Mar 2010
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Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
- NEP-CFN-2010-04-17 (Corporate Finance)
- NEP-RMG-2010-04-17 (Risk Management)
- NEP-UPT-2010-04-17 (Utility Models & Prospect Theory)
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