Pure Contagion and Investors` Shifting Risk Appetite: Analytical Issues and Empirical Evidence
International Monetary Fund (IMF) - Research Department
GAM Fund Management Limited
IMF Working Paper No. 01/134
This paper discusses a pure form of financial contagion, unrelated to economic fundamentals - investors' shifting appetite for risk. It provides an analytical framework for identifying changes in investors' risk appetite and discusses whether it is possible to directly measure them in a way that can enable policy makers to differentiate between financial contagion and domestic fundamentals as the immediate source of a crisis. Daily measures of risk appetite are computed and their usefulness in predicting financial crises is assessed.
Number of Pages in PDF File: 35
Keywords: Risk aversion, contagion affects, financial crises
JEL Classification: F31, F32, G20, G33working papers series
Date posted: January 31, 2006
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