The results reported in this article were generated using GAUSS 3.6. We thank Rock Rockerfellar and Jackie Lynch for research assistance.
IDENTIFYING REGIME CHANGES IN MARKET VOLATILITY
Article first published online: 25 JAN 2006
Journal of Financial Research
Volume 29, Issue 1, pages 79–93, March 2006
How to Cite
Guo, W. and Wohar, M. E. (2006), IDENTIFYING REGIME CHANGES IN MARKET VOLATILITY. Journal of Financial Research, 29: 79–93. doi: 10.1111/j.1475-6803.2006.00167.x
- Issue published online: 25 JAN 2006
- Article first published online: 25 JAN 2006
A casual inspection of a graph of volatility indexes over time indicates that volatility has undergone infrequent, but significant, shifts in its average level. The purpose of this article is to test for multiple structural breaks in the mean level of market volatility measured by the VIX and VXO, and to identify statistically the dates of these mean shifts. We find evidence of three distinct periods: pre-1992, 1992–1997, and post-1997. We find that the mean volatility, as well as its standard deviation, was lowest during 1992–1997. Our findings provide statistical evidence consistent with popular beliefs that market volatility changes over time.