VOLATILITY INFORMATION AND STOCK MARKET CRASHES

Nikolaos Antonakakis and Johann Scharler

Journal of Advanced Studies in Finance, 2012, vol. 3, issue 1, 49-57

Abstract: In this paper we examine the evolution of the SP500 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

Date: 2012
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Working Paper: Volatility, Information and Stock Market Crashes (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:srs:jasf00:v:3:y:2012:i:1:p:49-57

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