Volatility, Information And Stock Market Crashes
In 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.
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.:
- Nick Bloom, 2007.
"Uncertainty and the Dynamics of R&D,"
American Economic Review,
American Economic Association, vol. 97(2), pages 250-255, May.
- Nick Bloom, 2007. "Uncertainty and the dynamics of R&D," LSE Research Online Documents on Economics 19724, London School of Economics and Political Science, LSE Library.
- Nicholas Bloom, 2007. "Uncertainty and the Dynamics of R&D," Discussion Papers 07-021, Stanford Institute for Economic Policy Research.
- Nick Bloom, 2007. "Uncertainty and the Dynamics of R&D," CEP Discussion Papers dp0792, Centre for Economic Performance, LSE.
- Nicholas Bloom, 2007. "Uncertainty and the Dynamics of R&D," NBER Working Papers 12841, National Bureau of Economic Research, Inc.
- G. William Schwert, 1989.
"Stock Volatility and the Crash of '87,"
NBER Working Papers
2954, National Bureau of Economic Research, Inc.
- Joseph Zeira, 2000.
"Informational overshooting, booms and crashes,"
Federal Reserve Bank of San Francisco, issue Apr.
- Markus K Brunnermeier, 2002.
"Bubbles and Crashes,"
FMG Discussion Papers
dp401, Financial Markets Group.
- David M. Frankel, 2008. "Adaptive Expectations And Stock Market Crashes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 595-619, 05.
- Frankel, David M., 2008. "Adaptive Expectations and Stock Market Crashes," Staff General Research Papers Archive 31688, Iowa State University, Department of Economics.
- Nicholas Bloom, 2007.
"The Impact of Uncertainty Shocks,"
NBER Working Papers
13385, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:srs:jasf12:4:v:3:y:2012:i:1:p:49-67. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laura Stefanescu)
If references are entirely missing, you can add them using this form.