Recent crises have seen very large spikes in asset price risk without dramatic shifts in fundamentals. We propose an explanation for these risk panics based on self-fulfilling shifts in risk made possible by a negative link between the current asset price and risk about the future asset price....

Recent crises have seen very large spikes in asset price risk without dramatic shifts in fundamentals. We propose an explanation for these risk panics based on self-fulfilling shifts in risk made possible by a negative link between the current asset price and risk about the future asset price....

Recent crises have seen large spikes in asset price risk. We propose an explanation for such panics based on self-fulfilling shifts in beliefs about risk. A negative link between the current level and the future risk of an asset price leads to a circular relationship between the stochastic...