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Price volatility, international market links, and their implications for regulatory policies

Roll, Richard (1989) Price volatility, international market links, and their implications for regulatory policies. Journal of Financial Services Research, 3 (2-3). pp. 211-246. ISSN 0920-8550. doi:10.1007/bf00122803.

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Disastrous events sometimes engender redeeming social benefits. The international crash of equity markets in mid-October 1987 is a case in point, for it has provoked many scientific papers, both theoretical and empirical, on market volatility, international market links, and market structure, papers that may have never been written without the crash as a catalyst. The purpose of the present article is to provide an assessment of some of the most significant empirical studies and to summarize their implications about possible regulatory reform of the equity and futures markets. In addition, I will present some new evidence about volatility and its relation to existing market regulations across countries. Specifically excluded from my survey of empirical papers will be reports provided by various "commissions." Some of these reports contain fine empirical work, but they are not really scientific studies in the sense of having been subjected to a thorough review by peers before publication. Kamphuis, Kormendi, and Watson (1989) provide excerpts that include the most important empirical results from six different commission reports. But even without such commission reports, there are plenty of good papers to examine, some of which have surprising new conclusions. Their technical sophistication is often quite advanced for the general reader, so one of my goals is to summarize their contributions in nontechnical language. The October 1987 Crash posed three important scientific questions: 1. What were its causes? 2. Why and how did it propagate internationally? 3. Was it related to particular institutional practices, market arrangements, or regulatory policies? The subsequent three sections of the article are devoted respectively to evidence about these three questions.

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Additional Information:© Kluwer Academic Publishers 1989. The author is grateful for helpful discussions with Franklin Edwards, David Hirshleifer, Merton Miller, and Stephen Ross, and for comments from Dan Nelson, Sushil Wadhwani, and the other participants at the Conference on Regulatory Reform of Stock and Futures Markets, Futures Center, Columbia University, New York, May 12, 1989. None of these individuals would agree to share the responsibility for the contents of the article. Research support has been provided by the Columbia Futures Center.
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Columbia Futures CenterUNSPECIFIED
Issue or Number:2-3
Record Number:CaltechAUTHORS:20190426-145911102
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Official Citation:Roll, R. J Finan Serv Res (1989) 3: 211.
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:95047
Deposited By: George Porter
Deposited On:26 Apr 2019 22:25
Last Modified:16 Nov 2021 17:09

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