chapter  1
28 Pages

■ An Overview of the Issues Surrounding Stock Market Volatility

ByELENA KALOTYCHOU, SOTIRIS K. STAIKOURAS

Volatility as a phenomenon as well as a concept remains central to modern financial markets and academic research. The link between volatility and risk has been to some extent elusive, but stock market volatility

CONTENTS 1.1 Introduction 3 1.2 Speculation and Volatility 4 1.3 Information, Liquidity, and Volatility 7 1.4 Derivatives Trading and Volatility 10 1.5 Stylized Facts of Volatility Modeling 13 1.6 The Rival Volatility Forecasts 17 1.7 Volatility Trading 18 1.8 Conclusion 21 References 22

is not necessarily a bad thing. In fact, fundamentally justified volatility can form the basis for efficient price discovery, while volatility dependence implies predictability, which is welcomed by traders and medium-term investors.