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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, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:20932
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    Cited by:

    1. is not listed on IDEAS
    2. Abeeb Olaniran & David Gabauer & Rangan Gupta & Onur Polat, 2025. "Predicting the Conditional Distribution of Risk Aversion The Role of Climate Risks in a Cross-Quantilogram Framework," Working Papers 202524, University of Pretoria, Department of Economics.
    3. Faia, Ester & Lewis, Karen K. & Zhou, Haonan, 2025. "Do investor differences impact monetary policy spillovers to emerging markets?," Journal of International Economics, Elsevier, vol. 156(C).
    4. Baur, Dirk G. & Dimpfl, Thomas & Pena, Javier, 2025. "A Safe Haven Index," Finance Research Letters, Elsevier, vol. 85(PB).
    5. Marco Flaccadoro & Stefania Villa, 2025. "Global risk aversion and the term premium gap in emerging market economies," Temi di discussione (Economic working papers) 1493, Bank of Italy, Economic Research and International Relations Area.
    6. Bonato, Matteo & Demirer, Riza & Gupta, Rangan & Olaniran, Abeeb, 2026. "Does mining activity drive crash risks in bitcoin?," The Quarterly Review of Economics and Finance, Elsevier, vol. 105(C).
    7. Janus, Jakub, 2025. "Global financial risk and uncovered interest parity premia in Central and Eastern Europe," Economic Modelling, Elsevier, vol. 148(C).
    8. Matteo Bonato & Riza Demirer & Rangan Gupta & Abeeb Olaniran, 2025. "Does Mining Activity Drive Crash Risks in Cryptocurrency Markets? An Application to Bitcoin," Working Papers 202530, University of Pretoria, Department of Economics.

    More about this item

    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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