Time: 1.00 - 2.00pm Venue: Room 3.21, Old Building, LSE (map)
Speaker: Ilaria Piatti (Saïd Business School, University of Oxford)
Seminar Title: Subjective Bond Risk Premia and Belief Aggregation

Abstract: The central ingredient of empirical asset pricing tests is the (expected) risk premium. However, heterogeneity in expectations makes aggregation of beliefs to the marginal agent a non-trivial task. This paper proposes a novel aggregation  approach inspired by Friedman’s “selection in competitive markets” hypothesis. Our measure is available for the cross-section of U.S long term bond maturities and is available in real-time for an extended sample period. We use this measure to revisit conclusions of structural models and find support for rational determinants of risk premia and, in particular, a stronger role for the quantity of risk channel than what has been previously documented.