Risk and Ambiguity in Turbulent Times

The Quarterly Journal of Finance, Forthcoming

NYU Stern School of Business Forthcoming

18 Pages Posted: 5 May 2021

See all articles by Menachem Brenner

Menachem Brenner

New York University (NYU) - Department of Finance

Yehuda (Yud) Izhakian

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: May 5, 2021

Abstract

This paper focuses on the 2008 to 2020 period during which two major crises, affecting the economy and the financial markets, occurred. Between 2008 and 2020, there were less extreme tail events, including the lingering Eurozone and Greece crises. In particular, after extremely high stock market volatility and volatility of volatility (VoV) during 2008, the long-run average volatility declined to about 20% and the VoV to around 100%. This paper analyzes this period through the lens of risk and ambiguity (uncertainty). It aims to address the question: what are the financial markets that trade risk---the volatility derivatives markets---telling us? To this end, this paper uses several measures of uncertainty. This paper reviews the history of volatility and uncertainty measures and discusses their informativeness. It then discusses the information derived from volatility derivatives.

Keywords: Ambiguity, Knightian Uncertainty, Financial Crisis, Covid Crisis, Volatility Index

JEL Classification: D53, D81, D83, E44, G1

Suggested Citation

Brenner, Menachem and Izhakian, Yehuda (Yud), Risk and Ambiguity in Turbulent Times (May 5, 2021). The Quarterly Journal of Finance, Forthcoming, NYU Stern School of Business Forthcoming, Available at SSRN: https://ssrn.com/abstract=3840253 or http://dx.doi.org/10.2139/ssrn.3840253

Menachem Brenner

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0323 (Phone)
212-995-4233 (Fax)

Yehuda (Yud) Izhakian (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

HOME PAGE: http://https://people.stern.nyu.edu/yizhakia/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
152
Abstract Views
588
rank
264,620
PlumX Metrics