Journal of Financial Economics Vol. 145 No. 2 2022
Have risk premia vanished?
Abstract
We apply a new methodology for identifying pervasive and discrete changes (“breaks”) in cross-sectional risk premia. Size, value, and investment risk premia have fallen off to the point where they are insignificantly different from zero at the end of the sample period. The market risk premium has also declined systematically over time but remains significant and positive as do the momentum and profitability risk premium. We construct a new instability risk factor from cross-sectional differences in individual stocks’ exposure to time-varying risk premia and show that this factor earns a premium comparable to that of commonly used risk factors.
- DOI
- 10.1016/j.jfineco.2021.08.019
- Volume
- 145
- Issue
- 2
- Pages
- 553-576
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref