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Niklas Wagner

is Professor of Finance and Financial Control at the University of Passau, Germany. After receiving his PhD in Finance, he held postdoctoral appointments at the Haas School of Business, U.C. Berkeley, and at Stanford GSB, thereafter finishing his habilitation doctoral degree at TU Munich. Professor Wagner has co-authored various contributions in finance, covering research in the areas of asset management, empirical asset pricing, applied financial econometrics as well as derivatives and risk management. Professor Wagner has co-edited book volumes on derivatives and risk management, currently is an associate editor of Economic Modelling, Emerging Markets Review, Finance Research Letters, the Journal of International Financial Markets, Institutions and Money, and the International Review of Financial Analysis, and is Editor-in-Chief of Studies in Economics and Finance.

Patrizia Perras

is research assistant at the Finance and Financial Control Research Group and PhD candidate at the Department of Business Administration and Economics at the University of Passau, Germany. She earned a M.Sc. in Accounting, Finance and Taxation from the same institution in 2015. Her field of research is primarily related to dynamic asset pricing, capital markets and risk management.

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Patrizia Perras, Niklas Wagner: The Interaction of Equity and Bond Premia

This paper investigates intertemporal variations and joint dynamics in equity and bond risk premia. Motivated by Merton's intertemporal asset pricing model, we use long-term government bonds to construct the hedging component in the conditional model. We find that the conditional covariance of stock market returns and long-term government bond returns plays a significant role in explaining the time variation in the risk premia of both, equities and bonds. To identify the factors that drive the stock-bond covariance, we apply a vector autoregressive model where endogenous regime shifts are triggered by stock market uncertainty, stock market illiquidity and the inflation rate. Our results show that especially inflation exhibits power in predicting aggregate stock returns over a short-term horizon and contributes to explaining the stock and bond co-movement. However, the predictability pattern varies across different states of the economy.

Last modified: 2017.09.10.