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Topic
Sovereign Risk Premia and Global Macroeconomic Conditions
Resource type
Authors/contributors
- Andrade, Sandro C. (Author)
- Ekponon, Adelphe (Author)
- Jeanneret, Alexandre (Author)
Title
Sovereign Risk Premia and Global Macroeconomic Conditions
Abstract
We study how shifting global macroeconomic conditions affect sovereign bond prices. Bondholders earn premia for two sources of systematic risk: exposure to low-frequency changes in the state of the economy, as captured by expected macroeconomic growth and volatility, and exposure to higher-frequency macroeconomic shocks. Our model predicts that the first source, labeled long-run macro risk, is the primary driver of the level and the cross-sectional variation in sovereign bond premia. We find support for this prediction using sovereign bond return data for 43 countries over the 1994–2018 period. A long-short portfolio based on long-run macro risk earns 8.11% per year in our sample.
Publication
Journal of Financial Economics
Volume
147
Issue
S0304405X22001489
Pages
172-197
Date
2023
Citation
Andrade, S. C., Ekponon, A., & Jeanneret, A. (2023). Sovereign Risk Premia and Global Macroeconomic Conditions. Journal of Financial Economics, 147, 172–197.
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