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The Term Structure of Risk Premia: Evidence from CDS Spreads

43 Pages Posted: 22 May 2009 Last revised: 7 Jan 2013

Tobias Berg

Frankfurt School of Finance & Management

Multiple version iconThere are 2 versions of this paper

Date Written: January 7, 2013

Abstract

This study estimates the term structure of risk premia before and during the 2007/2008 fi nancial crisis using a new approach based on credit default swaps. Credit markets off er the unique possibility to estimate risk premia for distinct maturities, which considerably facilitates the estimation of the term structure of risk premia. We find that the risk premium term structure was fllat before the crisis and downward sloping during the crisis. We provide several robustness tests to show that our results are not driven by counterparty risk, a biased measurement of the real-world default probability, or liquidity.

Keywords: time-varying risk premia, return predictability, credit risk, equity premium, structural models of default

JEL Classification: G12, G13

Suggested Citation

Berg, Tobias, The Term Structure of Risk Premia: Evidence from CDS Spreads (January 7, 2013). Available at SSRN: https://ssrn.com/abstract=1408631 or http://dx.doi.org/10.2139/ssrn.1408631

Tobias Berg (Contact Author)

Frankfurt School of Finance & Management ( email )

Sonnemannstra├če 9-11
Frankfurt am Main, 60314
Germany

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