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Risk-Free Rates And Animal Spirits In Financial Markets

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  • JUKKA ILOMÄKI

    (University of Tampere, Finland)

Abstract

We show analytically that animal spirit excess profits for uninformed investors fall (increase) when the risk-free rate rises (falls). In the theoretical analysis, we examine the expected returns of risk-averse, short-lived investors. In addition, we find empirically that the local risk-free rates explain 14% of the changes in the animal spirit excess profits in the global stock markets for the last 29 years when the animal spirits is characterized as a product of the trend-chasing rule.

Suggested Citation

  • Jukka Ilomäki, 2016. "Risk-Free Rates And Animal Spirits In Financial Markets," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(03), pages 1-18, September.
    • Handle: RePEc:wsi:afexxx:v:11:y:2016:i:03:n:s2010495216500111
    DOI: 10.1142/S2010495216500111
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    Cited by:

    1. Jukka Ilomäki & Hannu Laurila, 2018. "The Noise Trader Effect In A Walrasian Financial Market," Advances in Decision Sciences, Asia University, Taiwan, vol. 22(1), pages 405-419, December.

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