Open AccessRisk Premia in the Czech Money Market
Author(s) -
Martin Pohl
Publication year - 2013
Publication title -
financial assets and investing
Language(s) - English
Resource type - Journals
eISSN - 1804-509X
pISSN - 1804-5081
DOI - 10.5817/fai2013-1-1
Subject(s) - economics , risk premium , liquidity premium , money market , context (archaeology) , financial crisis , interest rate , term (time) , monetary economics , econometrics , structural break , affine term structure model , financial economics , yield curve , market liquidity , macroeconomics , liquidity risk , paleontology , physics , quantum mechanics , biology
We estimate risk premia in the Czech money market and we pay special attention to the 2008-2009 crisis period. Our results imply a rising forward premium and we argue that the error correction model is the most appropriate method, but median may be used as a first guess estimator. We estimated the term premium between the policy rate and various money market interest rates. In this context, ARCH models proved to be useful in reflection of non-stationarity observed in the data. The financial crisis caused a structural break in our data sample, but the impact on the forward premium was only brief and forward premia normalized quickly. The widening of the term premium proved to be much more persistent, although it declined significantly since the peak of the crisis.