Risk-On Risk-Off: A Multifaceted Approach to Measuring Global Investor Risk Aversion

Anusha Chari, Karlye Dilts Stedman and Christian Lundblad

No 20932, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper defines risk-on risk-off (RORO), an elusive terminology in pervasive use, as the variation in global investor risk aversion. Our high-frequency RORO index captures time-varying investor risk appetite across multiple dimensions: advanced economy credit risk, equity market volatility, funding conditions, and currency dynamics. The index exhibits risk-off skewness and pronounced fat tails, suggesting its amplifying potential for extreme, destabilizing events. Compared with the conventional VIX measure, the RORO index reflects the multifaceted nature of risk, underscoring the diverse provenance of investor risk sentiment. Practical applications of the RORO index highlight its significance for international portfolio reallocation and return predictability.

Keywords: Risk-on Risk-off; Global investor risk aversion; Extreme events; Tail risk; Return predictability (search for similar items in EconPapers)
JEL-codes: F21 F36 F65 G11 G12 G15 G23 (search for similar items in EconPapers)
Date: 2025-12
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP20932 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:20932

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP20932

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().