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An R-Based Landscape Validation of a Competing Risk Model
Published on: September 16, 2022
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Global risks, the macroeconomy, and asset prices
Michele Costola1, Michael Donadelli2, Luca Gerotto1,3
1Department of Economics, Ca' Foscari University of Venice, Venice, Italy.
Empirical Economics
|November 2, 2022
Summary
We introduce a Global Risks Awareness Index (GRAI) using Google search data to track public concern about economic, environmental, geopolitical, societal, and technological risks. Higher interconnectedness in global risk awareness is linked to a significant positive risk premium.
Area of Science:
- Economics
- Risk Management
- Public Perception
Background:
- Global risks, including economic, environmental, geopolitical, societal, and technological threats, are a significant concern.
- The World Economic Forum (WEF) identifies and categorizes these risks based on impact and likelihood.
- Understanding public awareness and perception of these risks is crucial for policy and financial markets.
Purpose of the Study:
- To develop a novel Global Risks Awareness Index (GRAI).
- To analyze the interconnectedness of public awareness across different global risk categories.
- To investigate the relationship between global risk perception, the macroeconomy, and asset pricing.
Main Methods:
- Constructing the GRAI using Google search volumes for WEF Global Risk Report topics.
- Analyzing risk category interconnections and spillover effects.
- Employing econometric models to test the relationship between risk awareness, macroeconomy, and asset returns.
Main Results:
- The GRAI effectively captures public concern dynamics and reveals high interconnectedness among global risk categories.
- Economic, geopolitical, and societal risks act as net shock transmitters to the macroeconomy.
- Increased interconnection in global risk awareness is associated with a positive and statistically significant risk premium.
Conclusions:
- Public awareness of global risks is interconnected and dynamic.
- Global risk perceptions significantly influence macroeconomic variables and asset pricing.
- The GRAI provides a valuable tool for understanding and quantifying global risk awareness and its financial implications.
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