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Risk premium, macroeconomics shocks, and information technology: An empirical analysis

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Listed author(s):
  • Pekka Mannonen
  • Elias Oikarinen

    (Department of Economics, University of Turku, School of Economics)

Abstract

This study identifies empirically the impact of various macroeconomic factors on the default risk premium. Using monthly data for the period 1970-2010 for the U.S., our estimations indicate that the monetary policy aggregates, risk-free interest rate, term structure of interest rates, inflation, and the state of the business cycle influence the risk premium. The results also provide some evidence in support of the hypothesis that the development of information technology has had a decreasing impact on the risk premium. Expectedly, various financial crises have had substantial and long-lasting effects on the premium. The results suggest that the direct impact of subprime crisis and Lehman collapse on the risk premium was as large as 2.5 percent-points for a sustainable period. Foreign financial crises, in turn, have lowered the risk premium in the U.S. market suggesting flight-to-safety phenomenon.

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Paper provided by Aboa Centre for Economics in its series Discussion Papers with number 84.

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Length: 28
Date of creation: Apr 2013
Handle: RePEc:tkk:dpaper:dp84
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Keywords: Financial crisis; financial accelerator; external finance premium; information technology; flight-to-safety;

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Find related papers by JEL classification:
  • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
  • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
  • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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  1. Mark Thompson, 2007. "Are adjustments in the default risk premium asymmetric?," Applied Economics, Taylor & Francis Journals, vol. 39(21), pages 2693-2698.
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  9. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299, September.
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  12. Allen, Franklin & Gale, Douglas, 2000. "Bubbles and Crises," Economic Journal, Royal Economic Society, vol. 110(460), pages 236-255, January.
  13. Ewing, Bradley T., 2003. "The response of the default risk premium to macroeconomic shocks," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 261-272.
  14. Patrick Traichal & Steve Johnson, 1999. "Forecastable default risk premia and innovations," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 23(3), pages 214-225, September.
  15. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
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