We document a new risk premium in the Japanese yen that compensates for the policy uncertainty in Japan. The yen risk premium is implied from bond markets under the assumption of no-arbitrage. We estimate a regime switching term structure model and find that in Japan, the conventional monetary...

I examine determinants of stochastic relative risk aversion in conditional asset pricing models. I first develop time-series specification tests with non-linear state-space models with heteroskedasticity based on Merton (1973)'s ICAPM. I then established the following facts. First, the surplus...