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Learning from History
Report

Learning from History

Volatility and Financial Crises

Jon Danielsson, Marcela Valenzuela and Ilknur Zer
Federal Reserve Board, 2016
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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • Well Structured

Recommendation

In the years before the 2008 financial collapse, stock market volatility was unusually subdued. In this insightful, well-presented report, economists Jon Danielsson, Marcela Valenzuela and Ilknur Zer offer financial professionals and policy makers new research on market volatility and banking crises that is based on more than 200 years of data drawn from countries around the world. The authors’ findings support the counterintuitive idea that long-term stability foreshadows economic shockwaves. getAbstract recommends this authoritative report to investors and policy experts interested in understanding how volatility patterns foster systemic risk.

Take-Aways

  • Financial crises are infrequent. However, when they do occur, they can be devastating.
  • Three-year periods of high volatility, reflecting substantial uncertainty about the future, are powerful predictors of financial market crashes.
  • Another pattern with strong prognostic power is that of low volatility for long periods of time.

About the Authors

Jon Danielsson is a political economist at the London School of Economics, where Marcela Valenzuela is a PhD student in finance. Ilknur Zer is an economist at the Board of Governors of the Federal Reserve System.

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