Estimating time-varying risk aversion from option prices and realized returns

Kosolapova, Maria; Hanke, Michael; Weissensteiner, Alex

doi:10.1080/14697688.2022.2130086

Cited by 6 publications

(1 citation statement)

References 33 publications

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“…Moreover, the estimated risk aversion coe¢ cient is strongly correlated with sentiment components that measure "excessive optimism" and "overcon…dence." Using monthly data on options for the S&P 500 index, Kosolapova, Hanke and Weissensteiner (2023) estimate a time-varying risk aversion coe¢ cient for the marginal investor that is strongly pro-cyclical. Their study builds on earlier work by Bliss and Panigirtzoglou (2004) who …nd that risk aversion is lower during sample periods with high stock market volatility, such as crises.…”

Section: Introductionmentioning

confidence: 99%

Replicating business cycles and asset returns with sentiment and low risk aversion

Lansing

2024

Journal of Economic Dynamics and Control

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Section: Introductionmentioning

confidence: 99%

Replicating business cycles and asset returns with sentiment and low risk aversion

Lansing

2024

Journal of Economic Dynamics and Control

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Global Risk Aversion: Driving Force of Future Real Economic Activity

Kim,

Cho,

Ryu

2024

Journal of Forecasting

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This study examines how global risk aversion affects future real economic activity (REA). We propose a new international real business cycle (RBC) framework with a stochastic global risk aversion spillover process by extending the RBC model. Our model suggests output competition and risk aversion spillover as two influence channels of global risk aversion. We extract relative risk aversion factors and evaluate the significance of changes in the level of global risk aversion for forecasting. Our findings suggest that changes in the level of global risk aversion significantly drive the business cycle of open economies. A global risk aversion factor predicts a domestic country's future REA at least as well as the domestic risk aversion factor does. The impact of global risk aversion can vary depending on a country's relative productivity.

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From Economic Policy Uncertainty to Implied Market Volatility: Nothing to Fear?

Yang

2024

Journal of Futures Markets

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This paper investigates the interdependence between economic policy uncertainty (EPU) and implied market volatility using a Bayesian copula network. The results indicate that market‐implied volatilities serve as more reliable forward‐looking indicators of uncertainty compared to newspaper‐based EPU. Through a complex partial wavelet coherence approach, the study further explores the dynamic interdependence between these variables, revealing the specific time‐domain patterns of their effects on economic uncertainty and the conditions under which they can be distinguished as measures of risk aversion and ambiguity aversion. Notably, the findings suggest that, in the short time scales, the media tends to generate ambiguity, contributing to belief divergence among market participants. However, over longer time scales, EPU increasingly reflects economic uncertainty. These insights are valuable for gaining a deeper understanding of the media's role in conveying information and the behavioral traits influencing economic decision‐making.

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Estimating time-varying risk aversion from option prices and realized returns

Cited by 6 publications

References 33 publications

Replicating business cycles and asset returns with sentiment and low risk aversion

Replicating business cycles and asset returns with sentiment and low risk aversion

Global Risk Aversion: Driving Force of Future Real Economic Activity

From Economic Policy Uncertainty to Implied Market Volatility: Nothing to Fear?

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