Subjective Bond Risk Premia and Belief Aggregation

64 Pages Posted: 25 Apr 2019

See all articles by Andrea Buraschi

Andrea Buraschi

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Ilaria Piatti

University of Oxford - Said Business School

Paul Whelan

Copenhagen Business School

Date Written: April 2019

Abstract

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

Buraschi, Andrea and Piatti, Ilaria and Whelan, Paul, Subjective Bond Risk Premia and Belief Aggregation (April 2019). Saïd Business School WP 2019-06 [Updated version of SBS WP 2016-36]. Available at SSRN: https://ssrn.com/abstract=3377279 or http://dx.doi.org/10.2139/ssrn.3377279

Andrea Buraschi (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

HOME PAGE: http://www.andreaburaschi.com/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ilaria Piatti

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Paul Whelan

Copenhagen Business School ( email )

Copenhagen Business School
Finance Department
Copenhagen, DC 1854
Denmark

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