Business Cycles, Financial Crises and Stock Volatility
G. William Schwert
University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research
Carnegie-Rochester Conference Series on Public Policy, 31 (Autumn 1989)
This paper shows that stock volatility increases during recessions and
financial crises from 1834-1987. The evidence reinforces the notion that stock
prices are an important business cycle indicator. Using two different statistical
models for stock volatility, I show that volatility increases after major
financial crises. Moreover, stock volatility decreases and stock prices rise
before the Fed increases margin requirements. Thus, there is little reason
to believe that public policies can control stock volatility. The evidence
supports the observation by Black  that stock volatility increases after
stock prices fall.
Key words: Stock Market, Recession, Volatility, Leverage, ARIMA
JEL Classifications: G12, G14, E32
Cited 127 times in the SSCI and SCOPUS through 2016
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© Copyright 1989, Elsevier
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