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Measuring Investors' Risk Appetite

Prasanna Gai and Nicholas Vause ()
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Prasanna Gai: Bank of England

International Journal of Central Banking, 2006, vol. 2, issue 1

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.

JEL-codes: G10 G12 G13 (search for similar items in EconPapers)
Date: 2006
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Working Paper: Measuring investors' risk appetite (2005) Downloads
Working Paper: Measuring Investors' Risk Appetite (2005) Downloads
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