This paper focuses on the development of the interbank market risk premium in the Czech Republic during the global financial crisis. We explain the significant departure of interbank interest rates from the key monetary policy rate by a combination of different factors, including liquidity risk,...

In this paper, a fully choice-based theory of disappointment is developed. It encompasses, as particular cases, EU theory, Gul's theory of disappointment (1991) and the models of Loomes and Sugden (1986). According to the new theory, the risk premium of a random prospect is the sum of two...

If an investor does care for utilities -and not for monetary outcomes- stochastic dominances should be expressed in terms of utility units ("utils"). If so, any "rational" investor may be characterized by an elementary utility function -called canonical utility function- which is such that the...

Although it is endowed with many interesting properties, the theory of decision-making under risk by Loomes and Sugden [1986] has never been given an axiomatics. In this paper, we make up for this omission because their lottery-dependent functional is endowed with many interesting properties to...

This paper conducts an empirical analysis of risk premiums in the German day-ahead Electricity Wholesale Market. We compare hourly price data of the European Energy Exchange (EEX) auction and of the continuous over-the-counter (OTC) market taking place prior to EEX. As OTC price data are not...

We document two stylised facts of US short- and long-term interest rate data incompatible with the pure expectations hypothesis: Relatively slow adjustment to long-run relations and low contemporaneous correlation. We construct a small structural model which features three types of randomness:...

The expectations hypothesis of the term structure (EHT) implies cointegration between interest rates of different maturities and predicts certain values for adjustment speed. We estimate reduced-form vector error correction models of the US term structure. These are derived from a structural...

The paper estimates currency risk premia for the Czech Republic, Hungary, Poland and Slovakia. Three different approaches are applied: a constant premium approach based on rational expectations, while time-varying premia are estimated with a method using financial market analysts’ surveys and...

We develop a simple overlapping generations model in which the young have a choice in investing in equities and index-linked bonds. Projections of share price uncertainty over a 30-year period show that the risk associated with such a long-term investment predicts an equity premium that matches...

In the years following the influential article of Poole (1970), many central banks reoriented their operating procedures to focus more on interest rates and less on monetary aggregates. The rapid restructuring of global financial markets was thought to have led to instability in standard...