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Stock Volatility During the Recent Financial Crisis

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  • G. William Schwert

Abstract

This paper uses monthly returns from 1802-2010, daily returns from 1885-2010, and intraday returns from 1982-2010 in the United States to show how stock volatility has changed over time. It also uses various measures of volatility implied by option prices to infer what the market was expecting to happen in the months following the financial crisis in late 2008. This episode was associated with historically high levels of stock market volatility, particularly among financial sector stocks, but the market did not expect volatility to remain high for long and it did not. This is in sharp contrast to the prolonged periods of high volatility during the Great Depression. Similar analysis of stock volatility in the United Kingdom and Japan reinforces the notion that the volatility seen in the 2008 crisis was relatively short-lived. While there is a link between stock volatility and real economic activity, such as unemployment rates, it can be misleading.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16976.

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Date of creation: Apr 2011
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Handle: RePEc:nbr:nberwo:16976

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Cited by:
  1. Mencía, Javier & Sentana, Enrique, 2010. "Valuation of VIX Derivatives," CEPR Discussion Papers 7619, C.E.P.R. Discussion Papers.
  2. Kotkatvuori-Örnberg, Juha & Nikkinen, Jussi & Äijö, Janne, 2013. "Stock market correlations during the financial crisis of 2008–2009: Evidence from 50 equity markets," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 70-78.

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