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Learning from history: volatility and financial crises

Danielsson, Jon and Valenzuela, Marcela and Zer, Ilknur (2016) Learning from history: volatility and financial crises. Discussion Paper Series, 57. London School of Economics and Political Science, Systemic Risk Centre, London, UK.

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Identification Number: 57

Abstract

We study the effects of volatility on the probability of financial crises by constructing a cross-country database spanning 211 years. We find that volatility is not a significant predictor of crises whereas unexpected high and low volatilities are. Low volatility leads to banking crises and both high and low volatilities make stock market crises more likely, while volatility in any form has little impact on currency crises. The volatility-crisis relationship becomes stronger when financial markets are more prominent and less regulated. Finally, low-risk environments are conducive to greater buildup of risk-taking, providing empirical support for the Minsky hypothesis.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.systemicrisk.ac.uk/
Additional Information: © 2016 The Authors
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Sets: Research centres and groups > Systemic Risk Centre
Date Deposited: 12 Apr 2016 11:07
Last Modified: 12 Apr 2016 11:12
Projects: ES/K002309/1
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/66046

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