The 24th Barcelona GSE Lecture, "Risk premiums in sovereign debt markets," was presented by Prof. Kenneth Singleton (Stanford University) on May 10, 2012 at Banc Sabadell Auditorium in Barcelona.The lecture examined unspanned macroeconomic risks and the effects of financial frictions on risk premiums.
Where's the macro?
According to Prof. Singleton, current models of risk premiums in bond markets exclude references to macroeconomic conditions. However, the compensations that investors require for bearing these risks depend on global macroeconomic conditions.
"If we focus only on bond-market factors, we miss the impact of the macroeconomic variables, such as output and inflation, on risk premiums in financial markets," Prof. Singleton said. "The question is: can we build an economic framework for pricing bonds and measuring risk premiums where bond yields follow a low-dimensional factor model, where we rule out profitable riskless arbitrage opportunities, and where macroeconomic information influences investor's attitudes toward risks?"
Kenneth Singleton (PhD, University of Wisconsin) is the Adams Distinguished Professor of Management at the Graduate School of Business, Stanford University. His research interests are in econometric methods for estimation and testing of dynamic asset pricing models; modeling of term structures of government and defaultable bond yields; measuring and managing market, credit and liquidity risks; and debt financing in emerging economies.