A study on the impact of the first federal funds interest rate hike since the global financial crisis on market expectations and risk preferences

Abstract

This empirical study analyses the impact of the first federal funds interest rate hike since the last global financial crisis. Using a mixture of lognormal, generalised beta of the second kind and lognormal-polynomial distributions, it is estimated risk-neutral densities on S&P 500 options. The mixture of lognormal presents the best fit. Descriptive statistics are used to make comparisons, which shows a decrease in the means of the distributions and an increase in uncertainty after the event. It is estimated the representative investor’s constant relative risk aversion using a power-utility function on expected utility and rank-dependent expected utility models, and it is found a positive risk premium for the year of 2015.

Date of Award	17 Oct 2017
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	José Corrêa Guedes (Supervisor)