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Risk perception in financial markets: On the flip side
AUEB, Greece.
Tilburg Univ, Netherlands.
Univ Manouba, Tunisia.
Linköping University, Department of Management and Engineering, Economics. Linköping University, Faculty of Arts and Sciences.
2018 (English)In: International Review of Financial Analysis, ISSN 1057-5219, E-ISSN 1873-8079, Vol. 57, p. 184-206Article in journal (Refereed) Published
Abstract [en]

We propose an alternative approach to capture the asymmetric risk-return relationship in financial markets using affective cognitive analysis. Implied volatility is employed as a robust gauge of risk perception. Markets exhibit a dramatic increase in fear sentiment when extreme upper-quantile losses hit investors while conditional positive returns fuel exuberance. However, an inverse response is observed in Asian markets due to normative societal phenomena, such as herding. A cognitive paradigm provides with a better interpretation of contagion than classical leverage-feedback theories as risk perception evolves dynamically over time. Overall, the fear of losses is not the flip side of gains exuberance.

Place, publisher, year, edition, pages
ELSEVIER SCIENCE INC , 2018. Vol. 57, p. 184-206
Keywords [en]
Fear gauge; Affective reaction; Herding; Implied volatility; Behavioral bias
National Category
Economics
Identifiers
URN: urn:nbn:se:liu:diva-148253DOI: 10.1016/j.irfa.2018.03.005ISI: 000432622600015OAI: oai:DiVA.org:liu-148253DiVA, id: diva2:1213381
Note

Funding Agencies|Jan Wallander and Tom Hedelius Foundation; AUEB [DRASH I-EP-2601-01, EP-2658-01]

Available from: 2018-06-04 Created: 2018-06-04 Last updated: 2018-06-04

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Citation style
  • apa
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  • Other style
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  • de-DE
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  • en-US
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  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
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  • asciidoc
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