Macroeconomic factor model ----Confidence risk

Confidence risk is the unanticipated change in the return difference between risky corporate bonds and government bonds both with maturities of 20 years.

If the confidence higher, risk premium would be higher or lower?

Mock exam 2010 afternoon  question 23

I know that if the portfolio A’ factor sensitivities ( confidence risk) is higher than the benchmark, and the confidence risk is positive, portfolio A will have a higher return than the benchmark, holding other factor constant.

However, I can not agree that portfolio A will benefit from improving confidence. If the confidence improving, will the factor risk premium become lower?

I dont agree with you.

I think factor risk premium is constant . So if you increase the slope cofficient, the expected return will increase.It is from active factor difference with the benchmark.

confidence 的变化到底是改变risk premium 还是改变slope sensitivities呢？

问了一位资深的老师，他的答案如下。共大家参考

I guess the answer is dependent on how you define confidence risk.
 
If you define confidence risk as the difference between risky and risk-free assets then an increase in risk aversion should increase confidence risk. If market participants are more confident, this should reduce the spread between yield on risky and risk-free assets.
 
If confidence is improving, then according to the above portfolio A should suffer.
 
If however the model assumes that confidence risk is positive when the market is confident then portfolio A should be boosted. According to what you have written, it appears to be this second case.
 
There is no hard and fast answer however so you must look on a case by case basis.
 

 你需要明白PORTFOLIO的FACTOR PREMIUM是如何计算的

it is based on the premium between expected return and risk free rate when specific factor sensitivity is 1 and others are 0

so in the formula the premium is constant  and the active portfolio is making active factor return and stock selection

 think about CAPM the factor premium is market premium when beta=1 and no other factors

can you say when portofolio beta increases the market premium will rise?  

感谢。感谢。我把factor premium的计算与macro economic model的计算混淆了。这里题目里所说是FACTOR PREMIUM的计算是针对APTmodel 的，而我看那几个factor 好像macro economic model.