Dynamics of subjective risk premia

Stefan Nagel and Zhengyang Xu

Journal of Financial Economics, 2023, vol. 150, issue 2

Abstract: We examine subjective risk premia implied by return expectations of individual investors and professionals for portfolios of stocks, bonds, currencies, and commodity futures. While in-sample predictive regressions with realized excess returns suggest that objective risk premia vary countercyclically with business-cycle and asset-valuation measures, subjective risk premia extracted from survey data are largely acyclical. Out-of-sample forecasts of excess returns exhibit a similar lack of cyclicality, which suggests that investors’ learning of forecasting relationships in real time may help explain the cyclicality gap. There is a subjective risk-return tradeoff, with subjective risk premia increasing in subjective perceptions of risk quantity.

Keywords: Return expectations; Subjective risk premia; Return predictability; Survey data (search for similar items in EconPapers)
JEL-codes: E70 G10 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Dynamics of Subjective Risk Premia (2022)
Working Paper: Dynamics of Subjective Risk Premia (2022)
Working Paper: Dynamics of Subjective Risk Premia (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:150:y:2023:i:2:s0304405x23001459

DOI: 10.1016/j.jfineco.2023.103713

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