Ambiguity and Time-Varying Risk Aversion in Sovereign Debt Markets

Christoph Grosse Steffen and Maximilian Podstawski

VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking from Verein für Socialpolitik / German Economic Association

Abstract: This paper introduces changes in the level of ambiguity as a complementary source of time-varying risk aversion. We show in a consumption-based asset pricing model with simultaneously risky and ambiguous assets that a rise in the level of ambiguity raises investors' risk aversion. The effect is quantified in an application to European sovereign debt markets using a structural VAR to achieve identification in the data.

JEL-codes: C32 D80 E43 G01 H63 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-mac, nep-ore and nep-upt
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https://www.econstor.eu/bitstream/10419/168101/1/VfS-2017-pid-2231.pdf (application/pdf)

Related works:
Working Paper: Ambiguity and Time-Varying Risk Aversion in Sovereign Debt Markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc17:168101

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