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Financial market´s appetite for risk: and the challenge of assessing its evolution by risk appetite indicators

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  • Uhlenbrock, Birgit

Abstract

Assessments of investors' risk appetite/aversion stance via indicators often yields results which seem unsatisfactory (see e.g. Illing and Aaron (2005)). Understanding how such indicators work therefore seems essential for further improvements. The present paper seeks to contribute to this evolution, focusing on the Global Risk Appetite Index (GRAI) class of indicators going back to Kumar and Persaud (2002). Looking at international stock indices during the subprime crisis in 2007, the plausibility of the GRAIs benefits from applying the rank correlation approach of Kumar and Persaud (2002) combined with a modified version of the factor-transformation extension proposed by Misina (2006).

Suggested Citation

  • Uhlenbrock, Birgit, 2009. "Financial market´s appetite for risk: and the challenge of assessing its evolution by risk appetite indicators," Discussion Paper Series 2: Banking and Financial Studies 2009,08, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdp2:200908
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    References listed on IDEAS

    as
    1. Miroslav Misina, 2006. "Benchmark Index of Risk Appetite," Staff Working Papers 06-16, Bank of Canada.
    2. Sandeep Patel & Asani Sarkar, 1998. "Stock market crises in developed and emerging markets," Research Paper 9809, Federal Reserve Bank of New York.
    3. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-131, February.
    4. Coudert, V. & Gex, M., 2006. "Can risk aversion indicators anticipate financial crises?," Financial Stability Review, Banque de France, issue 9, pages 67-87, December.
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    More about this item

    Keywords

    Risk appetite indicators; risk aversion indicators; asset pricing; financial markets.;
    All these keywords.

    JEL classification:

    • 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

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