Sudden Spikes in Global Risk

Philippe Bacchetta and Eric van Wincoop
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Eric van Wincoop: University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

No 13-36, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Recent episodes (October 2008, May 2010, August 2011) have witnessed huge spikes in equity price risk (implied volatility). Apart from their large size, several features characterize these risk panics. They are global phenomena, shared among a broad set of countries. There is substantial variation though in the extent to which individual countries are impacted, while the impact bears little relation to financial linkages with the epicenter of the crisis. In addition there is usually not a large shock to fundamentals that sets off these panics. We provide an explanation for these risk panic features in the context of a two-country model that allows for self-fulfilling shifts in risk.

Pages: 34 pages
Date: 2013-01
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Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Sudden spikes in global risk (2013)
Working Paper: Sudden Spikes in Global Risk (2012)
Working Paper: Sudden Spikes in Global Risk (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1336

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