Pure Contagion and Investors Shifting Risk Appetite: Analytical Issues and Empirical Evidence

Kumar, Manmohan S.; Persaud, Avinash

doi:10.5089/9781451855609.001

Cited by 88 publications

(114 citation statements)

References 15 publications

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“…In economic theory and analysis, several authors have discussed how to measure risk appetite based on historical performance data . The authors refer to specific economic contexts and model frameworks, which will not be further discussed in this article.…”

Section: Review and Discussion Of Existing Ways Of Defining And Intermentioning

confidence: 99%

On the Meaning and Use of the Risk Appetite Concept

Aven¹

2012

Risk Analysis

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The risk appetite concept has been given considerable attention recently in enterprise risk management contexts. A number of definitions exist, most with a link to risk acceptability, but also values and goals. The usefulness of the concept is, however, disputed; some authors argue that we can in fact do better without it. In this article, we provide a thorough discussion of what the risk appetite concept is actually trying to express and how it best can be used in the relevant decision making. The main purposes of the article are (i) to argue that the risk appetite concept, suitably interpreted, has a role to play in risk management, (ii) to show that the risk appetite concept is well supported by some types of risk perspectives and not by others, and (iii) to show how the risk appetite concept is linked to other related concepts, such as risk seeking and risk acceptability. The risk perspectives studied range from expected value and probability based definitions of risk to views on risk, that are founded on uncertainties.

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Section: Review and Discussion Of Existing Ways Of Defining And Intermentioning

confidence: 99%

On the Meaning and Use of the Risk Appetite Concept

Aven¹

2012

Risk Analysis

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“…The type of contagion we are trying to measure is herd behavior by investors. Such behavior is generally modeled as being driven by information (see Calvo, 1999; Calvo & Mendoza, 2000; Pritsker, 2001; Kodres & Pritsker, 2002; Kumar & Presaud, 2002). 7 The key point in these papers is that in an increasingly globalized, volatile and complex environment, gathering information becomes an increasingly costly activity and this results in investors following other, so‐called informed, investors who specialize in a particular country or region.…”

Section: Contagion? What Is It?mentioning

confidence: 99%

Fatal attraction: Using distance to measure contagion in good times as well as bad

et al. 2007

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This paper proposes a new measure of contagion that is good at anticipating future vulnerabilities. Building on previous work, it uses correlations of equity markets across countries to measure contagion, but in a departure from previous practice measures contagion using the relationship of these correlations with distance. Also in contrast to previous work, our test is good at identifying periods of "positive contagion," in which capital flows to emerging markets in a herd-like manner largely unrelated to fundamentals. Identifying such periods of "fatal attraction" is important as they provide the essential ingredients for subsequent crises and rapid outflows of capital

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“…These trends lead to increases in the prices of risky assets across global markets. This type of contagion is generated by changes in global investors' portfolio structure rather than by the markets' characteristics (Kumar and Persaud ).…”

Section: Introductionmentioning

confidence: 99%

The Changing Role of Financial Stress, Oil Price, and Gold Price in Financial Contagion among US and BRIC Markets

et al. 2018

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The objective of this paper is to explore the determining factors behind financial contagion between US and BRIC (Brazil, Russia, India, and China) equity markets. To this end, we investigate the effects of global macroeconomic factors on the time‐varying correlations among these markets obtained by asymmetric dynamic conditional correlation method. Utilizing quantile regression analysis, we examine the determinants of financial contagion at different levels of time‐varying correlations. The results of quantile regression analyses reveal that global financial crisis (GFC) (2008) leads to changes in the dependence structure between dynamic conditional correlations among equity markets and global macroeconomic factors, such as global financial stress, oil prices, and gold prices. Following the GFC, monetary, and fiscal policy changes in the BRIC markets and hence changing macroeconomic risks of these markets are conducive to these changes. Our findings also demonstrate the importance of cross‐market rebalancing channel for information transmission across US and BRIC markets.

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Pure Contagion and Investors Shifting Risk Appetite: Analytical Issues and Empirical Evidence

Abstract: The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Cited by 88 publications

References 15 publications

On the Meaning and Use of the Risk Appetite Concept

On the Meaning and Use of the Risk Appetite Concept

Fatal attraction: Using distance to measure contagion in good times as well as bad

The Changing Role of Financial Stress, Oil Price, and Gold Price in Financial Contagion among US and BRIC Markets

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