The Macroeconomic Shock with the Highest Price of Risk

Pintér, Gábor

doi:10.2139/ssrn.2884307

SSRN Journal

2016

DOI: 10.2139/ssrn.2884307

|View full text |Cite

The Macroeconomic Shock with the Highest Price of Risk

Gábor Pintér¹

Abstract: There is a tight empirical link between the determinants of the cross-section of risk premia and selected structural shocks identified by macroeconomists. To show this, I propose an orthogonalisation method that approximates the stochastic discount factor with VAR innovations. When applying the method to the HML-SMBindustry portfolios, the obtained λ-shock closely resembles (up to 85% correlation) monetary policy and technology news shocks studied by macroeconomists. Results are similar for bond returns and ac… Show more

Help me understand this report

Search citation statements

Order By: Relevance

Paper Sections

Select...

Citation Types

Supporting

Mentioning

Contrasting

Year Published

2018

Publication Types

Select...

Article1

Relationship

Self Cite1

Independent0

Authors

Journals

Cited by 1 publication

(1 citation statement)

References 85 publications

(130 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…An earlier version of this paper(Pinter, 2016) contains further analysis of the λ-shock implied by momentum returns(Asness, 1994;Jegadeesh and Titman, 1993).…”

mentioning

confidence: 99%

Macroeconomic Shocks and Risk Premia

Pintér

2018

SSRN Journal

Self Cite

View full text Add to dashboard Cite

What are the macroeconomic forces behind the cross-sectional and time-series variation in expected excess returns? To answer this question, this paper integrates models of empirical asset pricing with structural vector autoregressions (VAR). First, I use an unconditional asset pricing framework to construct an orthogonal shock in a macroeconomic VAR that best explains the cross-sectional variation in expected returns. The obtained "λ-shock" closely resembles identified monetary policy surprises and does not explain the recent US recessions. Second, I integrate return-forecasting methods to construct a second shock in the VAR, which best explains time-variation in expected returns. The obtained "γ-shock" turns out to be virtually orthogonal to the λ-shock, closely resembles demand-type financial shocks identified by macroeconomists, and explains most US recessions. I find that the λ-shock and the γ-shock jointly explain up to 80% of aggregate consumption fluctuations in the US.

show abstract

“…An earlier version of this paper(Pinter, 2016) contains further analysis of the λ-shock implied by momentum returns(Asness, 1994;Jegadeesh and Titman, 1993).…”

mentioning

confidence: 99%

Macroeconomic Shocks and Risk Premia

Pintér

2018

SSRN Journal

Self Cite

View full text Add to dashboard Cite

show abstract

scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.

Contact Info

customersupport@researchsolutions.com

10624 S. Eastern Ave., Ste. A-614

Henderson, NV 89052, USA

Blog Terms and Conditions API Terms Privacy Policy Contact Cookie Preferences Do Not Sell or Share My Personal Information

Made with 💙 for researchers

Part of the Research Solutions Family.

The Macroeconomic Shock with the Highest Price of Risk

Cited by 1 publication

References 85 publications

Macroeconomic Shocks and Risk Premia

Macroeconomic Shocks and Risk Premia

Contact Info

Product

Resources

About