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Pure Contagion and Investors' Shifting Risk Appetite: Analytical Issues and Empirical Evidence

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  • Kumar, Manmohan S
  • Persaud, Avinash
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    Abstract

    This paper discusses a "pure" form of financial contagion, unrelated to economic fundamentals--investors' shifting appetite for risk. It provides an analytical framework for identifying changes in investors' risk appetite and discusses whether it is possible to directly measure them in a way that can enable policy makers to differentiate between financial contagion and domestic fundamentals as the immediate source of a crisis. Daily measures of risk appetite are computed and their usefulness in predicting financial crises is assessed. Copyright 2002 by Blackwell Publishers Ltd.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal International Finance.

    Volume (Year): 5 (2002)
    Issue (Month): 3 (Winter)
    Pages: 401-36

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    Handle: RePEc:bla:intfin:v:5:y:2002:i:3:p:401-36

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    Cited by:
    1. Laurence Fung & Chi-sang Tam & Ip-wing Yu, 2008. "Changes in Investors' Risk Appetite - An Assessment of Financial Integration and Interdependence," Working Papers 0812, Hong Kong Monetary Authority.
    2. Miroslav Misina, 2006. "Benchmark Index of Risk Appetite," Working Papers 06-16, Bank of Canada.
    3. Zaiter Lahimer, Mahjouba, 2011. "L’impact des entrées de capitaux privés sur la croissance économique dans les pays en développement," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/7670, Université Paris-Dauphine.
    4. Victor Vaugirard, 2005. "Crony Capitalism and Sovereign Default," Open Economies Review, Springer, vol. 16(1), pages 77-99, January.
    5. Gai, Prasanna & Vause, Nicholas, 2005. "Measuring Investors' Risk Appetite," MPRA Paper 818, University Library of Munich, Germany.
    6. Coudert, Virginie & Gex, Mathieu, 2008. "Does risk aversion drive financial crises? Testing the predictive power of empirical indicators," Journal of Empirical Finance, Elsevier, vol. 15(2), pages 167-184, March.
    7. Coudert, Virginie & Gex, Mathieu, 2010. "Contagion inside the credit default swaps market: The case of the GM and Ford crisis in 2005," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(2), pages 109-134, April.
    8. Duasa, Jarita & Kassim, Salina, 2008. "Herd behaviour in Malaysian capital market: An empirical analysis," MPRA Paper 13303, University Library of Munich, Germany.
    9. David Hauner & Manmohan S. Kumar, 2005. "Financial Globalization and Fiscal Perfomance in Emerging Markets," IMF Working Papers 05/212, International Monetary Fund.
    10. Miroslav Misina, 2003. "What does the risk-appetite index measure?," Economics Bulletin, AccessEcon, vol. 28(6), pages A6.
    11. Bayoumi, Tamim & Fazio, Giorgio & Kumar, Manmohan & MacDonald, Ronald, 2007. "Fatal attraction: Using distance to measure contagion in good times as well as bad," Review of Financial Economics, Elsevier, vol. 16(3), pages 259-273.
    12. Leitao, Joao & Armada, Manuel Rocha & Ferreira, Joaaquim, 2012. "Corruption and Co-Movements in European Listed Sport Companies: Did Calciocaos really matter?," MPRA Paper 42474, University Library of Munich, Germany.
    13. Brenda González-Hermosillo, 2008. "Investors' Risk Appetite and Global Financial Market Conditions," IMF Working Papers 08/85, International Monetary Fund.
    14. Brana, Sophie & Lahet, Delphine, 2010. "Determinants of capital inflows into Asia: The relevance of contagion effects as push factors," Emerging Markets Review, Elsevier, vol. 11(3), pages 273-284, September.
    15. Vaugirard, Victor, 2007. "Informational contagion of bank runs in a third-generation crisis model," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 403-429, April.

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