Learning from History: Volatility and Financial Crises

By Jón Dańıelsson, Marcela Valenzuela, Ilknur Zer. 2016

202 citations recorded by the source corpus.

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.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/8a0be866b88a28a39aa004b7e8e8d8adf3e5756b

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1. Davide Salvatore Mare
2. M. Čihák
3. Martin Melecky
4. Thorsten Beck
5. Rima Turk Ariss

Citations in the corpus

• Economic uncertainty and bank risk: Evidence from emerging economies (2020, unknown): “However, the return target required by shareholders may not change immediately when banks’ profits decline, probably because of lagged adjustments of shareholders’ expectation, thus driving banks to allocate their assets toward “high-risk, high-return” projects (DellʼAriccia et al., 2014). The incen”
• The Nexus of financial inclusion and financial stability : a study of trade-offs and synergies (2016, background): “7 See for instance, Lowe (2002) for a discussion of macroeconomic consideration for risk measurement, Danielsson et al. (2015) for the link between volatility and financial crises, and Acharya et al. (2010) for the importance of measuring tail risks.”