Where the Wild Things Are: Measuring Systemic Risk Through Investor Sentiment

96 Pages Posted: 24 Feb 2016 Last revised: 11 Aug 2016

Date Written: February 19, 2016

Abstract

In this paper, I develop a systemic risk measure derived from investor sentiment that has predictive power over future economic activity and market returns. Unlike existing measures, it is not focused on flagging investors’ heightened awareness of risk at the end of a boom episode but rather on capturing shifts in their trading behavior at the beginning of the episode. The method allows investors and regulators to observe industries in which risks could be building and provides regulators some lead time in deploying their macroprudential tools.

Keywords: G01, G11, G12, G18, G28

JEL Classification: Financial stability, Systemic risk, Investor sentiment, Risk management

Suggested Citation

Ergungor, Ozgur Emre, Where the Wild Things Are: Measuring Systemic Risk Through Investor Sentiment (February 19, 2016). FRB of Cleveland Working Paper No. 16-08; 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2737076

Ozgur Emre Ergungor (Contact Author)

affiliation not provided to SSRN

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