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Risk price decomposition and the output gap

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  • Ryuta Sakemoto

Abstract

We employ a time‐varying price of risk model that allows us to track the change in prices of risk. We find that the output gap generates the time‐varying prices of market and momentum risks, but the exposures to the output gap have the opposite signs. In contrast, we do not observe that the output gap is linked to time variations in the prices of value and investment risks. We uncover that the output gaps impact the prices of market risk for European and Japanese portfolios, while there are weak relationships between the prices of momentum risk and output gaps.

Suggested Citation

  • Ryuta Sakemoto, 2025. "Risk price decomposition and the output gap," The Financial Review, Eastern Finance Association, vol. 60(1), pages 121-146, February.
    • Handle: RePEc:bla:finrev:v:60:y:2025:i:1:p:121-146
    DOI: 10.1111/fire.12397
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