The international linkages of market risk perception

Abstract

[eng] This article studies the international linkages of market risk perception, which embeds a statistical measure of risk as well as the subjective beliefs and preferences of the representative investor. We find high commonality between the risk perception of different countries/economic areas, with a first principal component explaining more than 80% of the total variability. The level of integration is dynamic, peaking during crises. A connectedness analysis shows that the transmission of shocks goes from Western to Asia-Pacific economies. We also disentangle whether risk perception spillovers are due to shocks in the aggregate risk aversion or a resolution of uncertainty. A local projection analysis documents a short-term impact of risk aversion in the perception of risk. Uncertainty is also statistically significant, and although their effects are milder they span for longer periods.