Title: Low-frequency macroeconomic risks and asset prices: A critical appraisal of Epstein-Zin preferences
Authors: Georgios Xyngis - Cardiff Business School (United Kingdom) [presenting]
Abstract: The aim is to examine if low-frequency macroeconomic growth and volatility risks are priced in asset prices. The motivation comes from the spectral decomposition of the pricing kernel under recursive preferences. We demonstrate that macroeconomic shocks with frequencies lower than the business-cycle are not robustly priced in the cross-section of expected returns. In addition, the estimated risk premia are economically small, have wrong signs and the low-frequency risk exposures fail to match known patters in average returns. Overall, we highlight the need for risk preferences that allow investors to be more risk averse to business-cycle frequencies.