The international linkages of market risk perception

Pedro Serrano, Antoni Vaello-Sebastià and M. Magdalena Vich-Llompart

Journal of Multinational Financial Management, 2024, vol. 72, issue C

Abstract: This article studies the international linkages 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 statistically significant, and although their effects are milder they span for longer periods.

Keywords: Arrow–Debreu prices; Options; Integration; Risk aversion; Uncertainty (search for similar items in EconPapers)
JEL-codes: C58 G01 G11 G15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:72:y:2024:i:c:s1042444x23000452

DOI: 10.1016/j.mulfin.2023.100826

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