The effect of monetary policy on investors’ risk perception: Evidence from the UK and Germany

@inproceedings{Luo2011TheEO,
  title={The effect of monetary policy on investors’ risk perception: Evidence from the UK and Germany},
  author={Dan Luo and Iris Biefang-Frisancho Mariscal and Peter G. A. Howells},
  year={2011}
}
We use vector autoregressive models to estimate the effect of monetary policy on investors’ risk aversion. The latter is proxied by a variety of option based implied volatility indices for Germany and the UK. There is clear evidence of a procyclical response between monetary policy and risk aversion. Monetary policy shocks affect UK investors risk attitude for longer periods, while they have a stronger impact on German investors for a shorter period of time. There is also evidence that the Bank… CONTINUE READING