The International Linkages of Market Risk Perception
This article studies the international transmission of market risk perception, which embeds a statistical measure of risk as well as the subjective beliefs and preferences of the representative investor. We find high commonality between the risk perception of different countries/economic areas, with a first principal component explaining more than 80% of the total variability. The level of integration is dynamic, peaking during crises. A connectedness analysis shows that the transmission of shocks goes from Western to Asia-Pacific economies. We also disentangle whether risk perception spillovers are due to shocks in the aggregate risk aversion or a resolution of uncertainty. A local projection analysis documents a short-term impact of risk aversion in the perception of risk. Uncertainty is also statically significant, and although their effects are milder they span for longer periods
Year of publication: |
[2023]
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Authors: | Vaello-Sebastià, Antoni ; Serrano, Pedro ; Vich-Llompart, M. Magdalena |
Publisher: |
[S.l.] : SSRN |
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