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Measuring Investors' Risk Appetite

  • Prasanna Gai

    (Bank of England)

  • Nicholas Vause

    (Bank of England)

Registered author(s):

    This paper proposes a method for measuring investor risk appetite based on the variation in the ratio of risk-neutral to subjective probabilities used by investors in evaluating possible future returns to an asset. Unlike other indicators advanced in the literature, our measure of market sentiment distinguishes risk appetite from risk aversion, and is reported in levels rather than changes. Implementation of the approach yields results that respond to crises and other major economic events in a plausible manner.

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    Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

    Volume (Year): 2 (2006)
    Issue (Month): 1 (March)
    Pages:

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    Handle: RePEc:ijc:ijcjou:y:2006:q:1:a:5
    Contact details of provider: Web page: http://www.ijcb.org/

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