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Term Structure of Risk on Macrofinance Models

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  • Irina Zviadadze

    (Stockholm School of Economics)

Abstract

I propose a model-based approach to characterize the term structures of risk in cash flows and asset prices. I relax cross-equation restrictions in structural models and estimate the implied dynamics of macro fundamentals and asset prices. I use shock elasticities to characterize how risk propagates in asset prices. To account for time variation in the risk premium, I extend the theory of dynamic value decomposition (Hansen, 2012) to nonnormal shocks. I find that the leading models of time-varying risk premium fall short to account for the shape and level of the term structure of risk in equity returns and cash flows.

Suggested Citation

  • Irina Zviadadze, 2017. "Term Structure of Risk on Macrofinance Models," 2017 Meeting Papers 965, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:965
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    References listed on IDEAS

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