Stock Volatility During the Recent Financial Crisis

32 Pages Posted: 25 Apr 2011  

G. William Schwert

University of Rochester - Simon Business School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: April 2011

Abstract

This paper uses monthly returns from 1802-2010, daily returns from 1885-2010, and intraday returns from 1982-2010 in the United States to show how stock volatility has changed over time. It also uses various measures of volatility implied by option prices to infer what the market was expecting to happen in the months following the financial crisis in late 2008. This episode was associated with historically high levels of stock market volatility, particularly among financial sector stocks, but the market did not expect volatility to remain high for long and it did not. This is in sharp contrast to the prolonged periods of high volatility during the Great Depression. Similar analysis of stock volatility in the United Kingdom and Japan reinforces the notion that the volatility seen in the 2008 crisis was relatively short-lived. While there is a link between stock volatility and real economic activity, such as unemployment rates, it can be misleading.

Suggested Citation

Schwert, G. William, Stock Volatility During the Recent Financial Crisis (April 2011). NBER Working Paper No. w16976. Available at SSRN: https://ssrn.com/abstract=1820088

G. William Schwert (Contact Author)

University of Rochester - Simon Business School ( email )

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HOME PAGE: http://schwert.ssb.rochester.edu

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