Risk appetite. In general, the propensity of market participants to assume a risk (the amount of capital an investor is willing to lose in order to generate a potential profit)

In general, the propensity of market participants to take a risk (the amount of capital an investor is willing to lose in order to generate a potential profit). Central banks focus in particular on the risk appetite of banks as a step in the transmission process of monetary policy (risk taking channel). – In financial markets, the preference of investors to take exposures with a high risk of loss. A declining risk appetite leads to higher financing costs because investors’ return requirements increase despite the risk remaining the same. – See asset distress, contingent loss, herd behavior, catastrophe bonds, performance pressure, positioning, risk investors, risk aversion, risk culture, risk tolerance, risk avoidance policy, risk buffer, risk aversion, risk sharing, safe haven flows, single hedge funds, terror securities, perception bias, tremor premium. – Cf. Monthly Report of the Deutsche Bundesbank of October 2005, pp. 91 ff. (detailed presentation; indicators measuring risk appetite are also presented), Monthly Report of the Deutsche Bundesbank of November 2007, pp. 44 f. (portfolio rebalancing as a measure of investors’ risk assessment), Monthly Report of the Deutsche Bundesbank of August 2008, pp. 40 f. (determinants of risk appetite; formulas; overviews; references), ECB Monthly Bulletin of August 2008, pp. 96 ff. (risk appetite in its effect on the monetary policy transmission process; references).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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