A period of high price volatility in a given market does not mean a crash is around the corner — if anything, the opposite may be true, at least according to new research.
In a study of 40 historical financial asset bubbles, researchers from the Swiss Finance Institute found that the majority burst following a period of lower price volatility. Of these cases, which included the stock market bubbles preceding the Great Depression and Japan’s “Lost Decade,” 65 percent crashed when volatility was low, found authors Didier Sornette, Peter Cauwels, and Georgi Smilyanov.
