Government Debt and Risk Premia

@inproceedings{Liu2016GovernmentDA,
  title={Government Debt and Risk Premia},
  author={Yang Liu},
  year={2016}
}
I document that government debt is related to risk premia in various asset markets: (i) the debt-to-GDP ratio positively predicts excess stock returns with out-of-sample R2 up to 30% at a five-year horizon, outperforming many popular predictors; (ii) the debt-to-GDP ratio is positively correlated with credit risk premia in both corporate bond excess returns and yield spreads; (iii) higher debt-to-GDP ratio is associated with lower real risk-free rates, (iv) higher debt-to-GDP ratio corresponds… CONTINUE READING

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