Pure Contagion and Investors` Shifting Risk Appetite: Analytical Issues and Empirical Evidence
35 Pages Posted: 31 Jan 2006
Date Written: September 2001
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.
Keywords: Risk aversion, contagion affects, financial crises
JEL Classification: F31, F32, G20, G33
Suggested Citation: Suggested Citation