Identification of Non-Rational Risk Shocks

55 Pages Posted: 17 Jan 2022

See all articles by Maximilian Böck

Maximilian Böck

Vienna School of International Studies


This paper studies how non-rational risk shocks affect the macroeconomy. Exploiting survey data on expectations of financial executives, belief distortions on financial markets identify a non-rational risk shock. Surprises in beliefs in credit spreads measure belief distortions, and are used as a proxy for exogenous variation in the risk premium. Belief distortions elicit overreaction of credit spreads, eventually leading to exaggerated beliefs on financial markets. Results indicate that the constructed shocks have statistically and economically meaningful effects. A positive non-rational risk shock moves credit spreads remarkably up, while real activity and the stock market decline.

Keywords: Business cycles, Risk Shocks, Belief Distortions

Suggested Citation

Böck, Maximilian, Identification of Non-Rational Risk Shocks. Available at SSRN: or

Maximilian Böck (Contact Author)

Vienna School of International Studies ( email )


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