Stock Volatility and the Crash of '87
G. William Schwert
University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research
Review of Financial Studies, 3 (1990) 77-102
This paper analyzes the behavior of stock return volatility using daily
data from 1885 through 1988. The October 1987 stock market crash was unusual
in many ways. October 19th was the largest percentage change in market value
in over 29,000 days. Stock volatility jumped dramatically during and after
the crash. Nevertheless, it returned to lower, more normal levels more quickly
than past experience predicted. I use data on implied volatilities from call
option prices and estimates of volatility from futures contracts on stock
indexes to confirm this result.
Key words: Volatility, Stock Market, Crash, Option, Heteroskedasticity
JEL Classifications: G12, G14
Cited 253 times in the SSCI and SCOPUS through 2017
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