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Sudden Spikes in Global Risk

Author

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  • Philippe Bacchetta

    (University of Lausanne and Centre for Economic Policy Research and Hong Kong Institute for Monetary Research)

  • Eric van Wincoop

    (University of Virginia and National Bureau of Economic Research and Hong Kong Institute for Monetary Research)

Abstract

Recent episodes (October 2008, May 2010, August 2011) have witnessed huge spikes in equity price risk (implied volatility). Apart from their large size, several features characterize these risk panics. They are global phenomena, shared among a broad set of countries. There is substantial variation though in the extent to which individual countries are impacted, while the impact bears little relation to financial linkages with the epicenter of the crisis. In addition there is usually not a large shock to fundamentals that sets off these panics. We provide an explanation for these risk panic features in the context of a two-country model that allows for self-fulfilling shifts in risk.

Suggested Citation

  • Philippe Bacchetta & Eric van Wincoop, 2012. "Sudden Spikes in Global Risk," Working Papers 062012, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:062012
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    References listed on IDEAS

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    Cited by:

    1. Bogdan Murarasu & Alina Bobasu, 2014. "Output Spillovers from Trade and Financial Linkages in Central and Eastern European Countries: A Panel Analysis," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 6(2), pages 081-096, December.
    2. repec:pal:imfecr:v:67:y:2019:i:1:d:10.1057_s41308-019-00077-1 is not listed on IDEAS
    3. Nowzohour, Laura & Stracca, Livio, 2017. "More than a feeling: confidence, uncertainty and macroeconomic fluctuations," Working Paper Series 2100, European Central Bank.
    4. Òscar Jordà & Moritz Schularick & Alan M. Taylor & Felix Ward, 2019. "Global Financial Cycles and Risk Premiums," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(1), pages 109-150, March.
    5. Lee, Seohyun, 2017. "Three essays on uncertainty: real and financial effects of uncertainty shocks," MPRA Paper 83617, University Library of Munich, Germany.
    6. Gauvin, L. & McLoughlin, C. & Reinhardt, D., 2013. "Policy Uncertainty Spillovers to Emerging Markets - Evidence from Capital Flows," Working papers 435, Banque de France.
    7. repec:eee:jfinin:v:37:y:2019:i:c:p:58-74 is not listed on IDEAS
    8. repec:eee:jmacro:v:53:y:2017:i:c:p:42-56 is not listed on IDEAS
    9. Anjeza Kadilli, 2014. "Return Predictability in International Financial Markets and the Role of Investor Sentiment," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 14083, Institut d'Economie et Econométrie, Université de Genève.
    10. Cesa-Bianchi, Ambrogio & Eguren-Martin, Fernando & Thwaites, Gregory, 2017. "Foreign booms, domestic busts: the global dimension of banking crises," Bank of England working papers 644, Bank of England.
    11. L. GAUVIN & C. McLOUGHLIN & D. REINHARDT, 2016. "Economic policy uncertainty in advanced countries and portfolio capital flows to emerging markets," Rue de la Banque, Banque de France, issue 34, november..
    12. Kevin Larcher & Jaebeom Kim & Youngju Kim, 2018. "Uncertainty Shocks and Asymmetric Dynamics in Korea: A Nonlinear Approach," Working Papers 2018-12, Economic Research Institute, Bank of Korea.

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    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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