Volatility, information and stock market crashes

Nikolaos Antonakakis, J. Scharler

    Research output: Contribution to journalArticlepeer-review


    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.
    Original languageEnglish
    Pages (from-to)49-67
    Number of pages19
    JournalJournal of Advanced Studies in Finance
    Issue number1
    Publication statusPublished - Jun 2012


    • stock market crash
    • volatility
    • Markov switching.


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