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Is Volatility the Best Predictor of Market Crashes?

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  • Chikashi Tsuji

Abstract

The objective of this paper is to determine the best predictor of equity market crashes by focusing particularly on volatility and market liquidity. In finance, volatility has traditionally been regarded as the best measure of market risk. However, this paper shows that the forecast value of market liquidity, in particular our modified calculated market depth, predicts equity market crashes much more accurately than does the forecast values of EGARCH or Implied Volatility. Copyright Springer Science + Business Media, Inc. 2003

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  • Chikashi Tsuji, 2003. "Is Volatility the Best Predictor of Market Crashes?," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 10(2), pages 163-185, September.
    • Handle: RePEc:kap:apfinm:v:10:y:2003:i:2:p:163-185
    DOI: 10.1007/s10690-005-6009-x
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    1. Tissaoui, Kais & Ftiti, Zied, 2016. "Liquidity, liquidity risk, and information flow: Lessons from an emerging market," Research in International Business and Finance, Elsevier, vol. 37(C), pages 28-48.

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