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Pure Contagion and Investors Shifting Risk Appetite: Analytical Issues and Empirical Evidence

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  • Mr. Manmohan S. Kumar
  • Mr. Avinash Persaud

Abstract

This paper discusses a "pure" form of financial contagion, unrelated to economic fundamentals - investors' shifting appetite for risk. It provides an analytical framework for identifying changes in investors' risk appetite and discusses whether it is possible to directly measure them in a way that can enable policy makers to differentiate between financial contagion and domestic fundamentals as the immediate source of a crisis. Daily measures of risk appetite are computed and their usefulness in predicting financial crises is assessed.

Suggested Citation

  • Mr. Manmohan S. Kumar & Mr. Avinash Persaud, 2001. "Pure Contagion and Investors Shifting Risk Appetite: Analytical Issues and Empirical Evidence," IMF Working Papers 2001/134, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2001/134
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    References listed on IDEAS

    as
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