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Expectations, uncertainty and risk premium

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  • Rexford Abaidoo

Abstract

Purpose - This study aims to examine short- and long-run effects of specific macroeconomic conditions on risk premium estimates on lending. Design/methodology/approach - Empirical estimates are based on error correction and autoregressive distributed lag models. Findings - The results suggest that, in the short run, inflation expectations, recession expectations and actual inflationary conditions tend to have a significant impact on risk premium estimates; in the long run, however, only inflation expectations and recession expectations are significant in risk premium estimates on lending. Originality/value - This study examines how specific conditions of uncertainty and expectations influence variability in risk premium estimates on lending in the US economy.

Suggested Citation

  • Rexford Abaidoo, 2017. "Expectations, uncertainty and risk premium," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 9(3), pages 338-352, August.
    • Handle: RePEc:eme:jfeppp:jfep-12-2016-0096
    DOI: 10.1108/JFEP-12-2016-0096
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    Citations

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    Cited by:

    1. Teplova, Tamara V. & Rodina, Victoria A., 2021. "The reinvestment risk premium in the valuation of British and Russian government bonds," Research in International Business and Finance, Elsevier, vol. 55(C).

    More about this item

    Keywords

    Cycles; Behavioral economics; Business fluctuations; Macroeconomic uncertainty; Risk premium; Criteria for decision-making under risk and uncertainty; Determination of interest rates; Econometric and statistical methods; Inflation expectation; Recession expectation; B22; C22; C3; D84;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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