How Income Risks Affect Financial Markets - An Empirical Analysis of Three Transmission Channels

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Dokumentart: Dissertation
Date: 2016
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
Advisor: Grammig, Joachim (Prof. Dr.)
Day of Oral Examination: 2015-10-21
DDC Classifikation: 330 - Economics
Keywords: Ökonometrie
License: Publishing license including print on demand
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This thesis analyzes how financial markets are affected by income risk and unemployment. I focus on two sectors of financial markets and evaluate three potential transmission channels. To model how asset returns are affected by individual income risk, two possible approaches are developed and a third one examines how government bond yields are affected by aggregate income risk in the form of unemployment changes. The first and more traditional approach models individual income risk as a factor in a linear asset pricing model. With this model I examine how income risk influences the willingness of investors to take risks and the premium different types of portfolios have to pay in order to compensate for the portfolio's co-movement with the risk factor. The second approach considers psychological biases that influence how investors perceive income changes. Specifically, I test for the presence of behavioral effects that may arise from the exposure to individual income risk. A third study shifts the focus to a macroeconomic level. Here the relationship between government bond yields and unemployment is analyzed in a high-frequency heterogeneous vector-autoregression.

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