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@article{5133,
author = {Audzei, Volha},
article_location = {Praha},
article_number = {2},
keywords = {Rational Inattention, Interest Rates, Financial Crisis, Risk-taking},
language = {eng},
issn = {1802-792X},
journal = {Acta VŠFS},
title = {Information Acquisition and Excessive Risk: Impact of Policy Rate and Market Volatility},
url = {http://www.vsfs.cz/periodika/acta-2015-02.pdf},
volume = {9},
year = {2015}
}
TY - JOUR
ID - 5133
AU - Audzei, Volha
PY - 2015
TI - Information Acquisition and Excessive Risk: Impact of Policy Rate and Market Volatility
JF - Acta VŠFS
VL - 9
IS - 2
SP - 115-135
EP - 115-135
PB - Vysoká škola finanční a správní, z.ú
SN - 1802792X
KW - Rational Inattention, Interest Rates, Financial Crisis, Risk-taking
UR - http://www.vsfs.cz/periodika/acta-2015-02.pdf
N2 - Excessive risk-taking of financial agents drew a lot of attention in the aftermath of the financial crisis. Low interest rates and subdued market volatility during the Great Moderation are sometimes blamed for stimulating risk-taking and leading to the recent financial crisis. In recent years, with many central banks around the world conducting the policy of low interest rates and mitigating market risks, it has been debatable whether this policy contributes to the building up of another credit boom. This paper addresses this issue by focusing on information acquisition by the financial agents. We build a theoretical model which captures excessive risk taking in response to changes in policy rate and market volatility. This excessive risk takes the form of an increased risk appetite of the agents, but also of decreased incentives to acquire information about risky assets. As a result, with market risk being reduced, agents tend to acquire more risk in their portfolios then they would with the higher market risk. The same forces increase portfolio risk when the safe interest rate is falling. The robustness of the results is considered with different learning rules.
ER -
AUDZEI, Volha. Information Acquisition and Excessive Risk: Impact of Policy Rate and Market Volatility. \textit{Acta VŠFS}. Praha: Vysoká škola finanční a správní, z.ú, 2015, vol.~9, No~2, p.~115-135. ISSN~1802-792X.
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