Christian Skov Jensen will present "The Cyclicality of Risk and Risk Premia" (co-authored with Eben Lazarus, University of California, Berkeley).

We study the cyclicality of the market risk premium and variance. Although both increase in recessions, we find that the risk premium is less countercyclical than conditional variance, implying that the ratio of risk premium to variance is weakly procyclical, unlike the Sharpe ratio. We document this fact in a broad global equity sample, employing multiple approaches to portfolio formation around recession onsets, and we corroborate the evidence using option markets. We show that the ratio of risk premium to variance pins down the conditional beta in a regression of the stochastic discount factor on the market return, and its cyclicality helps explain key features of the equity term structure. A stylized model reconciles the procyclicality of the price per unit of variance risk with the term structure of Sharpe ratios on dividend claims.

Martin Kornejew will present "Credit Cycles and Creditor Rights" (co-authored with Shohini Kundu, UCLA Anderson, and Karsten Müller, NUS Business School).

Do creditor rights amplify or mitigate the macroeconomic consequences of credit cycles? Using a panel of 39 countries from 1978 to 2019, we show that credit expansions in economies with strong creditor protection are followed by smaller output losses, fewer non-performing loans, and a greater reallocation of credit away from risky borrowers. Firm-level evidence from the staggered adoption of antirecharacterization laws across U.S. states shows that well-protected creditors cut credit to risky firms with poor growth prospects, while easing credit constraints for productive firms. Our findings suggest that stronger creditor rights can enhance macroeconomic stability by facilitating a more efficient reallocation of capital.
 

Discussants:

Alberto Manconi will discuss "Bank Liquidity Regulation and the Growth of Private Credit" (Doerr, Gelos, Pursiainen).

Clement Jonathan Mazet-Sonilhac will discuss "Fairness by Design: Machine Learning and Interpretable Mortgage Lending" (Bell, Kakhbod, Stanton, Wallace).

Hannes Wagner will discuss "Insuring Climate Risks in Integrated Markets" (Gupta, Sockin, Starmans) and "The Ways of Water: Systematic Risk Impacts of Shareholder Engagements" (Guisande, Hoepner, Starks).