Low Risk as a Predictor of Financial Crises
Posted: 6 Jun 2018 Last revised: 25 Jun 2020
Date Written: May, 2018
Reliable indicators of future financial crises are important for policymakers and practitioners. While most indicators consider an observation of high volatility as a warning signal, this column argues that such an alarm comes too late, arriving only once a crisis is already under way. A better warning is provided by low volatility, which is a reliable indication of an increased likelihood of a future crisis.
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