The analysis of volatility is important because it is the most common measure of risk.
It is also considered a proxy for the uncertainty of the markets, the difference in the
opinions and the estimates, and also an indication of the market’s depth when
significant events take place (Kurz & Motolese, 2001). The twelve year period
provides us a time interval when the global economic environment changed radically.
The first six years were prosperous for both countries, while the 2008-2009 period
shook both economies. Our focus is on how each country’s Stock Market reacted on
the financial crisis. The volatility as a measure of uncertainty and risk could provide
useful information regarding the changes in the behaviour of the investors in the two
countries. A market operating under normal economic conditions is expected to have
low and relatively stable volatility. On the other hand, high volatility levels are
indicative of markets operating under conditions of uncertainty and high risk (Kneller
& Young, 2002). We should always bear in mind that each country has its own risk,
known as country risk premium (Titman, 2008). Therefore, the “low” and the “high”
levels of volatility are always relative to the historical levels of that particular country.
It becomes clear now that a twelve year period may sound long, but it is quite useful
in order to acquire empirical knowledge regarding the normal levels of volatility for
the two indexes. The years from 2004 to 2007 are rather useful in order to have a
proxy for the levels of volatility when markets operate under normal conditions.
The purpose of this essay is to examine the volatility of the Greek General Index and
the S&P 500. The examination will cover a period of twelve years, from 2004 to 2015
and will include an in depth analysis regarding possible changes, correlations and
dependences. Moreover, the analysis will examine the development of the volatility
through time. The twelve year period will be divided in biennial time intervals, which
will be examined separately.
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The evolution of volatility in the Stock Market of Greece and the US - Identifier: 89617
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