Pure Contagion and Investors Shifting Risk Appetite: Analytical Issues and Empirical Evidence

Author/Editor:

Manmohan S. Kumar ; Avinash Persaud

Publication Date:

September 1, 2001

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2001/134

Subject:

Currencies Currency markets Financial crises Financial markets Financial services Money Systemic crises Yield curve

English

Publication Date:

September 1, 2001

ISBN/ISSN:

9781451855609/1018-5941

Stock No:

WPIEA1342001

Pages:

35

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