Abstract
The effect of four distinct market events on investor risk aversion is evaluated using options data on the WTI crude oil futures contract during the 2007-2011 period. The risk aversion function and the stochastic discount factor (SDF) are estimated using parametric approaches before and after each event in a fifteen-day event window. Events of a more persistent, regime change type lead to flatter risk aversion functions (i.e., less decreasing in wealth) and SDFs. In contrast, events of a transitory nature lead to steeper risk aversion functions (i.e., decreasing more rapidly in wealth) and SDFs. Practical implications are drawn.
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