How do risk premiums change across macro regimes?

Risk premiums are regime-conditional. In Goldilocks (above-trend growth, low inflation), abundant liquidity and high confidence compress all risk premiums — equities, credit, and term premiums are all low, driving valuations higher. In Stagflation (below-trend growth, rising inflation), risk premiums expand across the board as investors demand higher compensation for the dual risks of earnings compression and rising discount rates. The liquidity risk premium is most sensitive to the liquidity regime — it spikes during liquidity contractions regardless of the growth-inflation regime.

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How Do Risk Premiums Change Across the Four Macro Regimes?

Risk premiums are regime-conditional. Goldilocks compresses all risk premiums — abundant liquidity and high confidence drive valuations higher. Stagflation expands all risk premiums — dual risks of earnings compression and rising discount rates demand higher compensation. The liquidity risk premium is most sensitive to the liquidity regime, spiking during contractions regardless of the growth-inflation regime.

AhaSignals Research · Not investment advice

Risk Premium Levels by Regime

Risk Premium	Goldilocks	Reflation	Stagflation	Deflation
Equity Risk Premium	Low (compressed)	Moderate	High (expanded)	Moderate to High
Term Premium	Low	Rising	High	Low
Credit Risk Premium	Low	Moderate	High	Very High
Liquidity Risk Premium	Very Low	Low to Moderate	High	Very High

Confidence level: Conceptually plausible — directional relationships are well-supported; magnitude varies across cycles. Not investment advice.

Known Limitations

Risk premium levels within each regime have high variance across historical episodes
Central bank intervention can suppress risk premiums below levels that regime fundamentals would suggest
Not investment advice.