Found 3 article(s) for author 'Emil Siriwardane'

Financial Market Risk Perceptions and the Macroeconomy

Financial Market Risk Perceptions and the Macroeconomy. Emil Siriwardane, Adi Sunderam, , Paper, “In this appendix, we provide details about the data construction for all variables used in the main text. We then present a battery of tests and additional analysis demonstrating the robustness of the relationship between the real rate and PVSt. In addition, we show that roughly 90% of the covariation between the real rate and PVSt stems from the fact that the real rate forecasts future returns on the vol-sorted portfolio. We also relate PVS to objective and subjective measures of expected risk for aggregate macroeconomic variables and the aggregate stock market, showing that PVS is related to expected risk, and that this connection is most evident for subjective measures of risk that reflect both public and private firms.  Moreover, we offer complementary VAR and local projection evidence that shocks to risk perceptions, as measured by PVSt, lead to a boom in the real economy. We also document that periods of high risk perceptions coincide with investor outflows from high-volatility mutual funds. Finally, we provide proofs for the propositions contained in the model section of the main text.Link

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A Measure of Risk Appetite for the Macroeconomy

A Measure of Risk Appetite for the Macroeconomy. Emil Siriwardane, Adi Sunderam, March 2018, Paper, “We document a strong and robust positive relationship between the one-year real rate and the contemporaneous valuation of volatile stocks, which we contend measures the economy’s risk appetite. Our novel proxy for risk appetite explains 41% of the variation in the real rate since 1970, while the valuation of the aggregate stock market explains just 1%. In addition, the real rate forecasts returns on volatile stocks, confirming our interpretation that changes in risk appetite drive the real rate. Increases in our measure of risk appetite are followed by a boom in investment and output.Link

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Does Precautionary Savings Drive the Real Interest Rate? Evidence from the Stock Market

Does Precautionary Savings Drive the Real Interest Rate? Evidence from the Stock Market. Emil Siriwardane, Adi Sunderam, August 6, 2017, Paper, “We document a strong and robust relation between the one-year real rate and precautionary savings motives, as measured by the stock market. Our novel proxy for precautionary savings, based on the difference in valuations between low- and highvolatility stocks, explains 37% of variation in the real rate. In addition, the real rate forecasts returns on the low-minus-high volatility portfolio, though it appears unrelated with measures of the quantity of risk. Our results suggest that precautionary savings motives, and thus the real rate, are driven by time-varying attitudes towards risk. We rationalize these findings in a stylized model with segmented investor clienteles and habit formation.Link

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