Stock Market Volatility:

Ten Years After the Crash

G. William Schwert

University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research

Brookings-Wharton Papers on Financial Services, Vol I, pp. 65-114,
Robert E. Litan and Anthony M. Santomero, eds.,Brookings Institution Press, 1998

Stock volatility has been unusually low since the 1987 stock market crash. The large increase in stock prices during since 1987 means that many days during 1996 and 1997 have experienced near record changes in the Dow Jones Industrial Average, even thought the volatility of stock returns has not been high by historical standards. I compare volatility of returns to U.S. stock indexes at monthly, daily, and intra-daily intervals, and I also show the volatility of returns to stock indexes implied by traded options contracts. Finally, I compare the volatility of U.S. stock market returns with the volatility of returns to stock markets in the United Kingdom, Germany, Japan, Australia, and Canada. All of the evidence leads to the conclusion that volatility has been very low in the decade since the 1987 crash.

Key words: Volatility, Stock Market, Crash, Option

JEL Classifications: G12, G14

Cited 14 times in the SSCI and SCOPUS through 2016
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