Volatility, Information And Stock Market Crashes
AbstractIn this paper, we examine the evolution of the S&P500 returns volatility around market crashes using a Markov-Switching model. We find that volatility typically switches into the high volatility state well before a crash and remains in the high state for a considerable period of time after the crash. These results do not support the view that crashes are due to the resolution of uncertainty (e.g. Romer, 1993), but are consistent with the model in Frankel (2008) where the adaptive forecasts of volatility by uniformed traders result in a crash.
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Bibliographic InfoArticle provided by ASERS Publishing in its journal Journal of Advanced Studies in Finance.
Volume (Year): III (2012)
Issue (Month): 1 (June)
Contact details of provider:
Web page: http://www.asers.eu/journals/jasf.html
stock market crash; volatility; Markov switching.;
Other versions of this item:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- G0 - Financial Economics - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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