Abstract

GARCIA-MACHADO, Juan J; CONGREGADO, Emilio; GOLPE, Antonio A  and  DE-LA-VEGA, Juan J. Financial crisis and market risk premium: Identifying multiple structural changes. Innovar [online]. 2011, vol.21, n.39, pp.153-160. ISSN 0121-5051.

The relationship between macroeconomic variables and stock market returns is, by now, well-documented in the literature. However, in this article we examine the long-run relationship between stock and bond markets returns over the period from 1991:11 to 2009:11, using Bai and Perron's multiple structural change approach. Findings indicate that while the market risk premium is usually positive, periods with negative values appear only in three periods (1991:1-1993:2, 1998:3-2002:2 and from 2007:1-2009:11) leading to changes in the GDP evolution. Thereby, the study shows the presence of structural breaks in the Spanish market risk premium and its relationship with business cycle. These findings contribute to a better understanding of close linkages between the financial markets and the macroeconomic variables such as GDP. Implications of the study and suggestions for future research are provided.

Keywords : Financial crisis; market risk premium; risk free rate; Spanish financial markets; Spanish government bonds; structural change.

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