Changing Risk Perception and the Time-Varying Price of Risk

Item Type Journal paper

This paper 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.

Authors Füss, Roland; Gehrig, Thomas & Rindler, Philipp
Journal or Publication Title Review of Finance
Language English
Subjects business studies
HSG Classification contribution to scientific community
Refereed Yes
Date June 2016
Publisher Oxford University Press
Place of Publication Oxford
Volume 20
Number 4
Page Range 1549-1585
Number of Pages 37
ISSN 1572-3097
ISSN-Digital 1573-692X
Publisher DOI 10.1093/rof/rfv046
Official URL
Depositing User Prof. Dr. Roland Füss
Date Deposited 17 Aug 2015 16:00
Last Modified 24 May 2018 14:33



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Füss, Roland; Gehrig, Thomas & Rindler, Philipp (2016) Changing Risk Perception and the Time-Varying Price of Risk. Review of Finance, 20 (4). 1549-1585. ISSN 1572-3097

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