Bond Premium in Turkey

Erdem Basci and Mehmet Ekinci

Macroeconomics from University Library of Munich, Germany

Abstract: In this paper we examine the difference between T-Bill returns and common stock returns in Turkey. We observe that there is a bond premium in Turkey unlike the equity premia in developed countries. As an attempt to explain this surprising observation, we incorporate inflation risk and default risk to the Mehra and Presscott (1985) dynamic asset pricing model. Calibration with reasonable parameter values indicate that the inflation risk alone is not sufficient to explain the observed bond premium. However by allowing for the presence of a perceived default probability, we can explain the observed bond premium on Turkish T-Bills over Turkish common stocks.

Keywords: Equity Premium Puzzle; Default Risk; Inflation Risk; Asset Pricing; Bond Premium. (search for similar items in EconPapers)
JEL-codes: E21 E31 G12 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2004-09-06
New Economics Papers: this item is included in nep-cfn, nep-cwa and nep-fmk
Note: Type of Document - pdf; pages: 27
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0409/0409007.pdf (application/pdf)

Related works:
Working Paper: Bond Premium in Turkey (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0409007

Access Statistics for this paper

More papers in Macroeconomics from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA (volker.schallehn@ub.uni-muenchen.de this e-mail address is bad, please contact repec@repec.org).