Financial risk

About: Financial risk is a research topic. Over the lifetime, 11899 publications have been published within this topic receiving 231404 citations. The topic is also known as: economic risk.

Dynamic Choice, Independence and Emotions

Abstract: From the viewpoint of the independence axiom of expected utility theory, an interesting empirical dynamic choice problem involves the presence of a global risk, that is, a chance of losing everything whichever safe or risky option is chosen. In this experimental study, participants have to allocate real money between a safe and a risky project. Treatment variable is the particular decision stage at which a global risk is resolved: (i) before the investment decision; (ii) after the investment decision but before the resolution of the investment risk; (iii) after the resolution of the investment risk. The baseline treatment is without global risk. Our goal is to investigate the isolation effect and the principle of timing independence under the different timing options of the global risk. In addition, we examine the role played by anticipated and experienced emotions in the choice problem. Main findings are a violation of the isolation effect, and support for the principle of timing independence. Although behavior across the different global risk cases shows similarities, we observe clear differences in people's affective responses. This may be responsible for the conflicting results observed in earlier experiments. Dependent on the timing of the global risk different combinations of anticipated and experienced emotions influence decision making.

Uncertainty, Risk-taking, and the Business Cycle in Germany

Abstract: This article investigates the business cycle behaviour of measures of perceived uncertainty and financial risk premia in Germany over the past two decades. Both the perceived uncertainty and the financial risk premia are highly countercyclical and may therefore amplify and propagate the transmission of business cycle shocks. We find that exogenous uncertainty shocks have a significantly small but temporary effect on output and financial risk premia and their overall contribution to output developments is limited. Positive financial risk aversion shocks, on the contrary, have a protractred but large negative impact on the economy and are more important in driving business cycles than uncertainty shocks. (JEL codes: E32, E44, G01, G20) Copyright The Author 2010. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Assessing financial risks using a multicriteria sorting procedure: the case of country risk assessment

Abstract: The assessment of financial risks is a problem of major interest for corporate entities (organizations, financial institutions, firms, etc.). The vulnerable economic and financial environments necessitate the development of operational approaches to measure and control financial risks. Most of the methodologies that have been proposed in the past employ a probabilistic notion of risk. This paper proposes an alternative approach to measure financial risks, considering their multidimensional nature. The proposed approach is based on the multicriteria decision aid (MCDA) method Multi-Group Hierarchical DIScrimination (M.H.DIS). The aim of the M.H.DIS method within the financial risk assessment context is to develop a set of additive utility functions that classify the considered alternatives (firms, investment projects, portfolios, countries, etc.) into predefined risk classes. The efficiency of the method is illustrated through a case study regarding the country risk assessment problem. Using the M.H.DIS method a discrimination model is developed that classifies the countries into four groups, and measures the corresponding creditworthiness and risk of the countries. Several validation tests are performed in order to compare the classification results obtained through M.H.DIS to the results obtained through multiple discriminant analysis.