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Risk-On Risk-Off: A Multifaceted Approach to Measuring Global Investor Risk Aversion

Author

Listed:
  • Chari, Anusha
  • Dilts Stedman, Karlye
  • Lundblad, Christian

Abstract

This paper defines risk-on risk-off (RORO), an elusive terminology in pervasive use, as the variation in global investor risk aversion. Our high-frequency RORO index captures time-varying investor risk appetite across multiple dimensions: advanced economy credit risk, equity market volatility, funding conditions, and currency dynamics. The index exhibits risk-off skewness and pronounced fat tails, suggesting its amplifying potential for extreme, destabilizing events. Compared with the conventional VIX measure, the RORO index reflects the multifaceted nature of risk, underscoring the diverse provenance of investor risk sentiment. Practical applications of the RORO index highlight its significance for international portfolio reallocation and return predictability.

Suggested Citation

  • Chari, Anusha & Dilts Stedman, Karlye & Lundblad, Christian, 2025. "Risk-On Risk-Off: A Multifaceted Approach to Measuring Global Investor Risk Aversion," CEPR Discussion Papers 20932, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20932
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    File URL: https://cepr.org/publications/DP20932
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    Keywords

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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