Analyzing financial risks is a crucial component of economic stability and decision-making for investors, regulators, and governments. This study examines the evolution of various financial risk measures, highlighting credit ratings from rating agencies, the VIX volatility index, the time it takes to sell an apartment in the real estate sector, and other relevant indicators.
1. Credit Ratings from Rating Agencies
Credit rating agencies play a critical role in assessing the creditworthiness of companies and countries. Credit ratings provide a measure of the probability of default. A downgrade in credit rating indicates an increased perception of risk.
Recent Evolution:
- 2008 Financial Crisis: The credit ratings of many financial institutions and sovereigns were downgraded, indicating a significant increase in perceived risk.
- COVID-19 Pandemic: Sectors like aviation and tourism saw their credit ratings downgraded, reflecting heightened economic uncertainty.
- Ukraine War (2022): Led to downgrades for Russia and exposed companies, increasing perceived risk in emerging markets.
2. Volatility Index (VIX)
The VIX, often called the “fear index,” measures the implied volatility of S&P 500 options. A high VIX indicates high expected volatility, often associated with periods of economic or political stress.
Recent Evolution:
- 2008: The VIX reached historic highs, reflecting panic in the financial markets.
- March 2020: The VIX spiked again during the onset of the COVID-19 pandemic, signaling extreme uncertainty.
- Current: The VIX is currently very low, indicating a period of relative calm in the US equity markets, which have been performing well, mainly thanks to the Magnificent 7.
3. Time to Sell an Apartment in Real Estate
The time it takes to sell an apartment is a key indicator of the dynamism and health of the real estate market. A long selling time can signal an oversupply or insufficient demand, often associated with unfavorable economic conditions.
Recent Evolution:
- Post-2008: Selling times increased, reflecting buyer reluctance and an oversupply of properties on the market.
- Post-COVID-19: The selling times varied considerably by region. In some major cities, demand dropped due to remote work, while other areas saw an increase in residential real estate demand. Profound changes were observed in the real estate market, with a boom in demand for houses and a slump in office real estate.
4. Default Rates
The default rate of companies is a direct indicator of financial risk in the private sector. A rising default rate often signals deteriorating economic conditions and increased financial stress among businesses.
Recent Evolution:
- 2008 Financial Crisis: Saw a significant spike in default rates, as many companies faced severe liquidity issues.
- COVID-19 Pandemic: Resulted in a wave of defaults, especially in industries like hospitality, retail, and aviation, which were hardest hit by lockdowns and travel restrictions.
- Current Trends: As the global economy navigates post-pandemic recovery and geopolitical tensions, default rates remain a closely watched indicator. Sectors facing structural changes or prolonged disruptions continue to show higher default risks.
5. Other Risk Measures
- Credit Spread: The difference in yield between corporate bonds and government bonds is a key indicator of credit risk perception. A widening spread signals increasing perceived risk.
- Macroeconomic Indicators: Unemployment rate, GDP growth, and inflation are also indirect but crucial measures of overall economic risk.
- ESG risk indicators have yet to emerge, in order to reflect the disorder coming from global warning
In a world of constant upheaval, risk measurement is evolving, and it is essential to consider different signals to understand an increasingly complex market. By monitoring and continuously assessing the accuracy of these measures, economic actors can better prepare and respond to potential shocks, thereby contributing to global financial stability and resilience.
