Discussion Paper

Low Risk as a Predictor of Financial Crises


Abstract: Reliable indicators of future financial crises are important for policymakers and practitioners. While most indicators consider an observation of high volatility as a warning signal, this column argues that such an alarm comes too late, arriving only once a crisis is already under way. A better warning is provided by low volatility, which is a reliable indication of an increased likelihood of a future crisis.

https://doi.org/10.17016/2380-7172.2169

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: FEDS Notes

Publication Date: 2018-05-09

Number: 2018-05-09