In this seminar, Lin Qi will present an overview of his thesis on Low volatility as a predictor of stock market crisis.

A famous hypothesis explaining stock market crises is that the shocks come from excessive risk that market participants take in relevant tranquil periods, known as “stability is destabilizing” (Minsky 1977). Focusing on the US stock market from 1960 to 2010, the first paper of the thesis classifies market volatility level into high and low states. The preliminary findings show that the volatility level is negatively related to the likelihood of future crises, though the effect is weak. This effect is much stronger if high and low volatility periods are considered separately. Lin Qi concludes that the low stock market volatility indicator demonstrates good predictability in both in-sample and out-of-sample tests.

Qi Lin is a PhD scholar at CAMA in Crawford School of Public Policy at ANU.

The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.