Measuring Investors' Risk Appetite

Prasanna Gai and Nicholas Vause

MPRA Paper from University Library of Munich, Germany

Abstract: This paper proposes a method for measuring investor risk appetite based on the variation in the ratio of risk-neutral to subjective probabilities used by investors in evaluating possible future returns to an asset. Unlike other indicators advanced in the literature, our measure of market sentiment distinguishes risk appetite from risk aversion, and is reported in levels rather than changes. Implementation of the approach yields results that respond to crises and other major economic events in a plausible manner.

Keywords: Risk appetite; market sentiment; risk-neutral pricing; risk aversion (search for similar items in EconPapers)
JEL-codes: G0 G00 (search for similar items in EconPapers)
Date: 2005-12-07
New Economics Papers: this item is included in nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Published in International Journal of Central Banking Number 1.Volume(2006): pp. 167-188

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Related works:
Journal Article: Measuring Investors' Risk Appetite (2006)
Working Paper: Measuring investors' risk appetite (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:818

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