Financial Market Volatility and the Implications for Market Regulation: A Survey

Louis Scott

No 1990/112, IMF Working Papers from International Monetary Fund

Abstract: Volatility in financial markets has forced economists to reexamine the validity of the efficient markets hypothesis, and new empirical approaches have been applied to the study of this important issue in recent years. Many of the recent studies have found evidence of excessive volatility. In the aftermath of the stock market crash of 1987 and the perceived increase in market volatility, some economists have advocated additional market regulations. Are these proposed regulations necessary and would they serve to reduce market volatility? This paper presents a review of recent studies on financial market volatility and examines the proposed regulations.

Keywords: WP; bond market; initial margin; present value; discount rate; price-dividend ratio; market fundamental; mean reversion; markets hypothesis; equilibrium price; noise term; utility function; marginal utility; short position; asset price volatility; market regulation; ex post market fundamental; Stock markets; Asset prices; Stocks; Discount rates; Securities markets (search for similar items in EconPapers)
Pages: 68
Date: 1990-11-01
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