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Systemic Risk and Sentiment Chapter Contribution to Handbook on Systemic Risk


  • Giovanni BARONE-ADESI

    (Swiss Finance Institute and University of Lugano)

  • Loriano MANCINI

    (Swiss Finance Institute and EPFL)

  • Hersh SHEFRIN

    (Leavey School of Business Santa Clara University)


Regulators charged with monitoring systemic risk need to focus on sentiment as well as narrowly defined measures of systemic risk. This chapter describes techniques for jointly monitoring the co-evolution of sentiment and systemic risk. To measure systemic risk, we use Marginal Expected Shortfall. To measure sentiment, we apply a behavioral extension of traditional pricing kernel theory, which we supplement with external proxies. We illustrate the technique by analyzing the dynamics of sentiment before, during, and after the global financial crisis which erupted in September 2008. Using stock and options data for the S&P 500 during the period 2002–2009, our analysis documents the statistical relationship between sentiment and systemic risk.

Suggested Citation

  • Giovanni BARONE-ADESI & Loriano MANCINI & Hersh SHEFRIN, "undated". "Systemic Risk and Sentiment Chapter Contribution to Handbook on Systemic Risk," Swiss Finance Institute Research Paper Series 11-49, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp1150

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    ystemic risk; Marginal Expected Shortfall; Pricing Kernel; Overconfidence; Optimism;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G01 - Financial Economics - - General - - - Financial Crises
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation


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