The recent behaviour of financial market volatility

BIS Papers No 29
August 2006

Abstract

This BIS Paper studies the behaviour of financial market volatility since 1970, with special emphasis on the evolution in recent years. Financial market volatility plays an important role in corporate investment decisions and in the willingness and ability of banks to extend credit.

This Report emphasises that the reduction in volatility seen in recent years largely represents:

  • the consequence of improvements in the functioning and structure of global financial markets;
  • increased market liquidity;
  • the greater role of institutional investors;
  • better communication between central banks and financial markets; and
  • stronger company balance sheets

The study was prepared by a study group under the Chairmanship of Mr Fabio Panetta of the Bank of Italy.