Measuring investors' risk appetite

Prasanna Gai and Nicholas Vause

Bank of England working papers from Bank of England

Abstract: This paper proposes a new method for measuring investor 'risk appetite'. Like other indicators in the literature, it is based on a comparison of risk-neutral probabilities of future returns with the corresponding subjective probabilities. The precise nature of the comparison is novel, however, and involves comparing probabilities across the full range of potential returns. Unlike other indicators, 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.

Date: 2005-11
New Economics Papers: this item is included in nep-fmk, nep-rmg and nep-upt
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Citations: View citations in EconPapers (5)

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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:boe:boeewp:283

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