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Changing Risk Perception and the Time-Varying Price of Risk

Journal
Review of Finance
ISSN
1572-3097
ISSN-Digital
1573-692X
Type
journal article
Date Issued
2016-06
Author(s)
Füss, Roland  
Gehrig, Thomas
Rindler, Philipp
DOI
10.1093/rof/rfv046
Abstract
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.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Oxford University Press
Publisher place
Oxford
Volume
20
Number
4
Start page
1549
End page
1585
Pages
37
Official URL
http://rof.oxfordjournals.org/content/early/2015/09/15/rof.rfv046.full
URL
https://www.alexandria.unisg.ch/handle/20.500.14171/104289
Subject(s)

business studies

Division(s)

s/bf - Swiss Institut...

SEW - Swiss Institute...

Eprints ID
243253
File(s)
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open.access

Name

Changing_Risk_Perception_Fuess_Gehrig_Rindler.pdf

Size

1.15 MB

Format

Adobe PDF

Checksum (MD5)

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