Economists like Keynes, Minsky, and Kindleberger have highlighted the importance of shifting perceptions of risk in driving markets and the economy. When risk perceptions are low, risky markets tend to perform well. But when risk perceptions increase, safer assets come into demand. Over the years, numerous measures have been used to measure risk perceptions – one widely followed by investors is equity volatility or VIX. In this paper, Financial Market Risk Perceptions and the Macroeconomy, Carolin Pflueger, Emil Siriwardane, and Adi Sunderam introduce a new measure that they call ‘the price of volatile stocks’ or PVS. But does it work?
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