The price of stock and bond risk in recoveries

Simon Kwan

FRBSF Economic Letter, 2013, issue aug19

Abstract: Investor aversion to risk varies over the course of the economic cycle. In the current recovery, the rebound in risk-taking is near the top of the historical range. The pace of economic growth does not appear to explain the increase in risk appetite. However, statistical research suggests that the severity of the preceding recession explains about 20% of the change in a measure of the long-term stock price-earnings ratio. And corporate profit growth appears to explain about 40% of the decline in the spread between risky and risk-free bonds.

Keywords: Risk; Investments (search for similar items in EconPapers)
Date: 2013
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