DEMS Economics Seminar: Ilaria Piatti (Queen Mary University)

Wednesday, May 22 at 12pm, Seminar room 2104, Building U7-2nd floor

Subjective Risk Premia in Bond and FX Markets


The DEMS Economics Seminar series is proud to host

Ilaria Piatti

(Queen Mary University)

with D. Pesch and P. Whelan


This paper elicits subjective risk premia from an international survey dataset on interest rates and exchange rates. Survey-implied risk premia are (i) unconditionally negative for bonds, positive for investment currencies and negative for funding currencies, (ii) cyclical and correlated with subjective macro expectations; (iii) predict future realised returns with positive sign. Deriving a subjective belief decomposition, we estimate a multi-country asset pricing model with three probability measures: the risk-adjusted, physical and a subjective measure. The structural estimation quantifies the size of financial market belief distortions and demonstrates that subjective risk premia are well understood by a classical risk-return trade-off.

The seminar will be in presence, Seminar Room 2104, Building U7-2nd floor