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The world price of sentiment risk

Karl Ludwig Keiber and Helene Samyschew

Global Finance Journal, 2017, vol. 32, issue C, 62-82

Abstract: This paper examines whether sentiment can be considered a priced source of risk on international financial markets. We investigate whether residual sentiment is rewarded with a risk premium if added to a model with macroeconomic fundamentals and analyze the time-variation of the respective risk premia. The analysis is performed in the framework of a conditional multiple-beta pricing model and focusses on the excess returns of the G7 stock markets in the period from February 1999 to February 2012. The obtained results indicate that sentiment indeed earns a significant risk premium of around 2% p.a. on the considered markets.

Keywords: International asset pricing; Global risk premia; Sentiment risk (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:glofin:v:32:y:2017:i:c:p:62-82