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- Title
Changing Risk Perception and the Time-Varying Price of Risk.
- Authors
Füss, Roland; Gehrig, Thomas; Rindler, Philipp B.
- Abstract
This article investigates the impact of changes in risk perception on bond markets triggered by the 2007-08 financial crisis. Using a methodology novel to empirical finance, we quantify the increase in credit spreads caused by changes in risk pricing and changes in risk factors. The lasting increase in credit spreads is almost exclusively due to time-varying prices of risk. We interpret this as a change in risk perception which provides a possible solution to the credit spread puzzle. Default premia spiked during the crisis and did not return to their pre-crisis levels. Liquidity premia increased during and after the crisis.
- Subjects
RISK perception; SENSORY perception; RISK society; RISK; ECONOMICS
- Publication
Review of Finance, 2016, Vol 20, Issue 4, p1549
- ISSN
1572-3097
- Publication type
Article
- DOI
10.1093/rof/rfv046