Title: Standard and alternative risk premiums in a world of lower nominal growth
Authors: Florian Ielpo - Centre Economie de la Sorbonne (France) [presenting]
Ling-Ni Boon - Paris Dauphine University (France)
Abstract: Nominal Gross Domestic Product growth has been declining over the past 30 years across the globe. The most recent forecasts for both Developed and Emerging countries show that this structural trend is here to stay: both growth and inflation forecasts are pointing in that direction. The aim is to investigate how this decline in overall nominal growth dynamics has impacted the returns coming from standard and alternative risk premiums over the 1976-2016 period. Using a bootstrap methodology, we use overlapping samples econometrics to assess the explanatory power of nominal growth over the returns from which multi-asset portfolios are made. Our results show that a large portion of standard assets such as bonds and equities show a significant dependency over the Worlds GDP growth and especially over the US one. In the case of alternative risk premiums, such as trend following, equity risk parity or carry strategies, this dependency is found to be weaker. Our findings are consistent with the current trend in the asset management industry to add more alternative risk premiums to balanced portfolios.