Danielsson, Jon, Valenzuela, Marcela and Zer, Ilknur (2018) Learning from history: volatility and financial crises. Systemic Risk Centre Discussion Papers (57). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.
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Abstract
We study the effects of stock market volatility on risk-taking and financial crises by constructing a cross-country database spanning up to 211 years and 60 countries. Prolonged periods of low volatility have strong in-sample and out-of-sample predictive power over the incidence of banking crises and can be used as a reliable crisis indicator, whereas volatility itself does not predict crises. Low volatility leads to excessive credit build-ups and balance sheet leverage in the financial system, indicating that agents take more risk in periods of low risk, supporting the dictum that "stability is destabilizing."
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | https://www.systemicrisk.ac.uk/ |
| Additional Information: | © 2018 The Author(s) |
| Divisions: | Finance Financial Markets Group |
| Subjects: | H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance |
| Date Deposited: | 03 Jul 2023 12:27 |
| Last Modified: | 16 Sep 2023 00:01 |
| URI: | http://eprints.lse.ac.uk/id/eprint/118942 |
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