Subjective Risk Premia in Bond and FX Markets

Daniel Pesch, Ilaria Piatti, Paul Whelan

Research output: Contribution to conferenceConference abstract for conferenceResearchpeer-review


This paper exploits an international survey dataset on interest rates and exchange rates to argue that, relative to common statistical benchmarks, subjective beliefs appear quite accurate and do not display strong evidence against rational expectations. We use surveys to study the expected return of an economically important investment strategy that buys a foreign long-term bond and sells a long-term U.S bond. Subjective risk premia on this trade are large, time-varying, counter-cyclical, positively correlated with risk proxies and predict future realised returns. Finally, we study implications for the design of structural models by estimating an SDF decomposition into permanent and transitory components.
Original languageEnglish
Publication date2023
Publication statusPublished - 2023
EventASSA 2023 Annual Meeting - Hilton Riverside, New Orleans, United States
Duration: 6 Jan 20238 Jan 2023


ConferenceASSA 2023 Annual Meeting
LocationHilton Riverside
Country/TerritoryUnited States
CityNew Orleans
Internet address


  • Survey data
  • Subjective beliefs
  • Bond risk premia
  • Exchange rate risk premia
  • International finance
  • Behavioural finance
  • Rational expectations
  • Asset pricing

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