Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73562
Authors: 
Antonakakis, Nikolaos
Scharler, Johann
Year of Publication: 
2009
Series/Report no.: 
Working Paper, Department of Economics, Johannes Kepler University of Linz 0918
Abstract: 
In this paper, we examine the evolution of the S&P500 returns volatility around market crashes using a Markov-Switching model. We find that volatility typically switches into the high volatility state well before a crash and remains in the high state for a considerable period of time after the crash. These results do not support the view that crashes are due to the resolution of uncertainty (e.g. Romer, 1993), but are consistent with the model in Frankel (2008) where the adaptive forecasts of volatility by uniformed traders result in a crash.
Subjects: 
Stock Market Crash
Volatility
Markov Switching
JEL: 
C11
D8
G0
Document Type: 
Working Paper

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