G. William Schwert

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

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European Financial Management, 17 (2011) 789-805.

Selected as the Reader's Choice Award for 2011 by the readers of European Financial Management

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This paper uses monthly returns from 1802-2010, daily returns from 1885-2010, and intraday returns from 1982-2010 in the United States to show how stock volatility has changed over time. It also uses various measures of volatility implied by option prices to infer what the market was expecting to happen in the months following the financial crisis in late 2008. This episode was associated with historically high levels of stock market volatility, particularly among financial sector stocks, but the market did not expect volatility to remain high for long and it did not. This is in sharp contrast to the prolonged periods of high volatility during the Great Depression. Similar analysis of stock volatility in the United Kingdom and Japan reinforces the notion that the volatility seen in the 2008 crisis was relatively short-lived. While there is a link between stock volatility and real economic activity, such as unemployment rates, it can be misleading.

Key words: Volatility, crisis, unemployment, recession, depression

JEL Classifications: G11, G12

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Cited 68 times in the SSCI and SCOPUS through 2020

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A full-text version of this paper is available in Acrobat's portable data format (.pdf).

Click here to working paper.

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June 25, 2010, Power Point presentation for European Financial Management Association Keynote Speech on stock market volatility in PDF format. [Aarhus, Denmark]

© Copyright 2011, European Financial Management Association

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