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Pure Contagion and Investors’ Shifting Risk Appetite: Analytical Issues and Empirical Evidence
Author(s) -
Kumar Manmohan S.,
Persaud Avinash
Publication year - 2002
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/1468-2362.00102
Subject(s) - risk appetite , economics , financial contagion , financial crisis , appetite , empirical evidence , monetary economics , financial economics , macroeconomics , risk management , finance , medicine , pathology , philosophy , epistemology
This paper discusses a ‘pure’ form of financial contagion, unrelated to economic fundamentals – investors’ shifting appetite for risk. It provides an analytical framework for identifying changes in investors’ risk appetite and discusses whether it is possible to directly measure them in a way that can enable policy makers to differentiate between financial contagion and domestic fundamentals as the immediate source of a crisis. Daily measures of risk appetite are computed and their usefulness in predicting financial crises is assessed.