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Why was stock market volatility so high during the Great Depression? : evidence from 10 countries during the interwar period

by: Voth, Hans-Joachim; Massachusetts Institute of Technology. Dept. of Economics

Publication date: 2002

Publisher: Cambridge, MA : Massachusetts Institute of Technology, Dept. of Economics

Collection: mitlibraries; blc; americana

Contributor: MIT Libraries

Language: English

"February 2002."; "12.2.2002"--Abstract

Includes bibliographical references (p. [42]-44)

The extreme levels of stock price volatility found during the Great Depression have often been attributed to political uncertainty. This paper performs an explicit test of the Merton/Schwert hypothesis that doubts about the survival of the capitalist system were partly responsible. It does so by using a panel data set on political unrest, demonstrations and other indicators of instability in a set of 10 developed countries during the interwar period. Fear of worker militancy and a possible revolution can explain a substantial part of the increase in stock market volatility during the Great Depression. Keywords: Stock price volatility, political uncertainty, worker militancy, Great Depression. JEL Classification: G12, G14, G18, E66, N22, N24, N12, N14