Abstract

https://ssrn.com/abstract=1695065
 
 

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What is a Market Crash?


David Le Bris


Toulouse Business School

May 20, 2010

Paris December 2010 Finance Meeting EUROFIDAI - AFFI

Abstract:     
Identifying market crashes can be problematic. In a stable financial environment, the same price variation in percentage will result in greater negative impact than during a highly volatile period.

In order to take into account changes of volatility throughout time, a new method is proposed, one which allows to adjust each price variation to accurately reflect its financial environment. This adjustment is made by measuring each price variation in number of standard-deviations calculated over the prior period. These adjusted variations can then be ranked therefore permitting the identification of market crashes. This method is tested on four long term series. Results on the French market, for example, are highly consistent with history. WWI caused major stock adjusted variations despite a low level of volatility and low price variations in percentage. Contemporary markets however are characterized more so by a high level of volatility than a time of frequent crashes.

Number of Pages in PDF File: 30

Keywords: Market Crashes, Volatility, Rare Events, 19th Century, 20th Century

JEL Classification: G1, G12, N23, N24


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Date posted: October 21, 2010 ; Last revised: November 12, 2010

Suggested Citation

Le Bris, David, What is a Market Crash? (May 20, 2010). Paris December 2010 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=1695065

Contact Information

David Le Bris (Contact Author)
Toulouse Business School ( email )
20, bd Lascrosses
Toulouse, 31068
France
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