Pure Contagion and Investors Shifting Risk Appetite: Analytical Issues and Empirical Evidence

September 1, 2001

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Manmohan S. Kumar, and Avinash Persaud. Pure Contagion and Investors Shifting Risk Appetite: Analytical Issues and Empirical Evidence, (USA: International Monetary Fund, 2001) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Currencies, Currency markets, Financial crises, Financial markets, Financial services, Money, Systemic crises, Yield curve

Keywords: Appetite index, Bear risk, Contagion affects, Currencies, Currency markets, Excess return, Financial crises, Global, Hong Kong dollar, Investor behaviour, Investor risk preference, Mexican peso, New Zealand dollar, Risk, Risk appetite, Risk appetite measure, Risk aversion, Risk-appetite measure, Risk-loving return, Systemic crises, WP, Yen return, Yield curve

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/134
Stock No:

WPIEA1342001
ISBN:

9781451855609
ISSN:

1018-5941

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