Risk Aversion Spillover: Evidence from Financial Markets and Controlled Experiments

75 Pages Posted: 25 May 2021 Last revised: 4 Jan 2023

See all articles by Xing Huang

Xing Huang

Washington University in St. Louis - Olin Business School

Nancy R. Xu

Boston College, Carroll School of Management

Date Written: January 4, 2023

Abstract

We study risk aversion (RA) spillover from the US to several major developed economies. Using daily financial market and news data, we identify US RA events and show that the international pass-through of US high RA events is significantly higher (61%) than that of US low RA events (43%), capturing asymmetric spillover. We replicate these findings in controlled experiments where non-US subjects were primed with scenarios of US RA events. Our experimental evidence further shows that US RA events also generate asymmetric emotion changes, which can be linked to unfamiliarity and explains 20% of the RA spillover asymmetry.

Keywords: risk aversion, propagation, emotions, animal spirits, controlled experiment, VIX, variance risk premium, uncertainty, international comovement

JEL Classification: G1, G15, D91, C9

Suggested Citation

Huang, Xing and Xu, Nancy R., Risk Aversion Spillover: Evidence from Financial Markets and Controlled Experiments (January 4, 2023). Available at SSRN: https://ssrn.com/abstract=3852463 or http://dx.doi.org/10.2139/ssrn.3852463

Xing Huang

Washington University in St. Louis - Olin Business School ( email )

Simon Hall 211
Washington University in St. Louis
St. Louis, MO 63130
United States

Nancy R. Xu (Contact Author)

Boston College, Carroll School of Management ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

HOME PAGE: http://www.nancyxu.net

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