20180709-NATIXIS-Level_of_risk_and_level_of_risk_aversion_5页_625kb

Flash Economics Summary

Core Content

This document discusses the concept of risk perception and its two main components:

1. The actual level of risk (related to economic and financial market uncertainty)
2. The level of risk aversion (related to investor behavior and sentiment)

The focus is on analyzing how risk perception has evolved over time, particularly since 2018, and distinguishing between the real risk and the perceived risk due to investor behavior.

Main Points

• Risk perception indices, such as the one developed by Natixis, reflect both the actual risk and the level of risk aversion.
• Risk aversion can increase even if the actual risk remains low, which is a critical distinction for investors and analysts.
• To separate the two components, the document uses upgrade-to-downgrade ratios for High Yield companies in the U.S. and the euro zone as a proxy for the actual risk level.
• Econometric regression is applied to the Natixis risk perception index against the average upgrade-to-downgrade ratio, helping to isolate the impact of real risk from risk aversion.
• The results show that since 2018, the rise in risk perception has mainly been driven by increased risk aversion, rather than a real increase in economic or financial risk.

Key Findings

• The level of risk aversion was notably high during the following periods:

  • 2007 to 2009
  • 2010 and 2011
  • 2015

• Recent developments (2018 onwards) indicate a significant increase in risk perception, primarily due to higher risk aversion.

• The actual risk level, measured by changes in corporate bond ratings, has remained relatively low during this period.

Methodology

• Data Source: Natixis risk perception index (in basis points).
• Indicator for Actual Risk: Upgrade-to-downgrade ratios for High Yield companies in the U.S. and the euro zone.
• Econometric Model: A regression analysis is conducted to estimate the portion of risk perception attributable to actual risk versus risk aversion.
• Results: The explained portion of the index corresponds to the real risk, while the residual reflects the influence of risk aversion.

Conclusion

• The rise in risk perception since 2018 is mainly attributed to increased risk aversion, not a real rise in market risk.
• Understanding the dual nature of risk perception is essential for making informed investment decisions.
• The analysis highlights the importance of differentiating between objective risk and subjective investor sentiment.

Disclaimer Highlights

• The document is intended for professional and qualified investors only.
• It is strictly confidential and cannot be shared without consent.
• No personalized investment recommendation is provided.
• The content is not a financial analysis and does not comply with legal requirements for independent investment research.
• No liability is accepted for the distribution or use of the document.
• Risk factors and rewards are acknowledged, and the document is based on public information.
• The views expressed are the personal opinions of the authors and do not represent the views of Natixis or any of its affiliates.

Regulatory Information

• Supervised by: European Central Bank (ECB)
• Authorized in France: ACPR as a Bank - Investment Services Provider
• Regulated in France: Autorité des Marchés Financiers (AMF)
• Authorized in the UK: FCA and Prudential Regulation Authority
• Authorized in Spain: ACPR and CNMV
• Operations in Italy and Germany: Subject to local regulations
• In Canada: Not registered as a dealer; only permitted clients may trade
• In Australia: Operates through Natixis Australia Pty Ltd (NAPL), which holds an Australia Financial Services License
• In Hong Kong: For distribution to professional investors only

Additional Notes

• The stock recommendations may be subject to specific disclaimers, which can be accessed via the provided link.
• The authors are not associated with or registered with FINRA, and the report is not subject to FINRA rules.
• Contact: For additional information or to execute transactions, contact your usual registered representative at Natixis Securities Americas LLC.