We show that the current carrier density collapse in doped manganites, whic
h results from bipolaron formation in the paramagnetic phase, leads to a co
lossal change of the optical conductivity in an external magnetic field at
temperatures close to the ferromagnetic transition. As with the colossal ma
gnetoresistance itself, the corresponding magneto-optical effect is explain
ed by the dissociation of bipolarons into polarons owing to the exchange in
teraction with the localized Mn spins in the ferromagnetic phase. The effec
t is positive at low frequencies and negative in the high-frequency region.
The present results agree with available experimental observations. [S0163
-1829(99)02233-X].