Assessing the Structural Fundamentals of Realized Risk Premiums

20 Pages Posted: 18 May 2017

See all articles by Ling-Ni Boon

Ling-Ni Boon

Tilburg University

Florian Ielpo

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES); Unigestion

Date Written: May 18, 2017

Abstract

In investment-decision-making, it is customary to define economic regimes of high or low realized risk premiums with economic indicators such as inflation and growth. We generalize this discrete categorization to a continuous one by estimating a linear relation between economic fundamentals and realized standard and alternative risk premiums. Using a bootstrap method, we estimate that changes in macroeconomic indicators explain about 50% of the variation in realized risk premiums. We apply our estimates to comment on the implication of a prolonged low growth scenario on the prospective level of risk premiums.

Keywords: Sharpe Ratio, Risk Premium, Long-Term Investing, Alternative Assets, Economic Growth

Suggested Citation

Boon, Ling-Ni and Ielpo, Florian, Assessing the Structural Fundamentals of Realized Risk Premiums (May 18, 2017). Available at SSRN: https://ssrn.com/abstract=2970397 or http://dx.doi.org/10.2139/ssrn.2970397

Ling-Ni Boon

Tilburg University ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Florian Ielpo (Contact Author)

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

Unigestion ( email )

8c, avenue de Champel CP 387
CP 387
Genève 12, CH 1211
Switzerland

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