Discussion Paper Details

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Title: Term Structure of Risk in Expected Returns

Author(s): Irina Zviadadze

Publication Date: December 2018

Keyword(s): incremental expected dividend, incremental expected return and permanent and transient shocks

Programme Area(s): Financial Economics

Abstract: This article develops an empirical methodology to determine which economic shocks span risk in asset returns and fluctuations in discount rate and cash flow news. A theoretically motivated shock identification scheme in a present-value model identifies economic shocks. The choice of identifying restrictions is based on the properties of the term structure of risk in expected returns in the data and in equilibrium models. Empirically, I relate equity discount rate news and cash flow news to multiple sources of risk in the variance of consumption growth. Both types of news are almost equally important for the aggregate market risk.

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Bibliographic Reference

Zviadadze, I. 2018. 'Term Structure of Risk in Expected Returns'. London, Centre for Economic Policy Research.