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Seminar

Macro Strikes Back: Term Structure of Risk Premia and Market Segmentation

  • Series
    Erasmus Finance Seminars
  • Speaker(s)
    Svetlana Bryzgalova (London Business School, United Kingdom)
  • Field
    Finance, Accounting and Finance
  • Location
    Erasmus University Rotterdam, Campus Woudestein, T03-16
    Rotterdam
  • Date and time

    March 19, 2024
    11:45 - 13:00

ERIM-TI Finance Seminar

Abstract
We develop a unified framework to study the term structure of risk premia of nontradable factors. Our method delivers level and time variation of risk premia, uncovers their propagation mechanism, is robust to misspecification and weak identification, and allows for segmented markets. Most macroeconomic factors are weakly identified at quarterly frequency, but have increasing (unconditional) term structures with large risk premia at business cycle horizons. Moreover, the slopes of their term structures are strongly procyclical. Most macroeconomic and intermediary-based factors command similar risk premia in equity and corporate bond markets, while we find strong evidence of segmentation for other factors.