Subjective Bond Risk Premia and Belief Aggregation
64 Pages Posted: 25 Apr 2019
Date Written: April 2019
This paper documents large heterogeneity and forecasting skill in the cross section of survey based bond risk premia. We propose a novel approach to aggregate individual expectations to proxy for the belief of the marginal agent. Our measure is motivated by economic theory, is available in real-time and generates forecast errors that are not easily corrected. Comparing our measure with risk premium factors based on structural models we find support for variation in bond risk premia via the quantity of risk channel.
A previous version of this paper can be found at: https://ssrn.com/abstract=2901502.
Keywords: Bond Risk Premia, Rational Expectations, Heterogeneous Beliefs, Aggregation
JEL Classification: D9, E3, E4, G12
Suggested Citation: Suggested Citation