Large Global Volatility Shocks, Equity Markets and Globalisation: 1885-2011

47 Pages Posted: 19 Jun 2013

See all articles by Arnaud Mehl

Arnaud Mehl

European Central Bank (ECB)

Date Written: May 2, 2013


I estimate the transmission of large global volatility shocks in international equity markets from the earlier (pre-1914) to the modern era of globalisation. To that end, I identify 43 such shocks over the period 1885-2011, defined as significant increases in unanticipated volatility in US equity markets, which I relate to well-known historical events. My estimates suggest that the response of global equity markets to these shocks in a panel of 16 countries is both statistically significant and large economically. On average, global equity market valuations correct by about 20% in the month when a shock occurs. There is substantial heterogeneity in responses both across countries and time, however, which can be partly explained by differences in global trade integration. I find no evidence that other potential theoretical determinants, such as output composition, country fundamentals or global policy responses matter, by contrast. These results shed light on a neglected aspect of globalisation, which creates opportunities but also heightens the exposure of economies to acute surges in global uncertainty and risk aversion.

Keywords: large global volatility shocks, equity markets, international linkages, globalisation

JEL Classification: F30, F31, N20

Suggested Citation

Mehl, Arnaud, Large Global Volatility Shocks, Equity Markets and Globalisation: 1885-2011 (May 2, 2013). ECB Working Paper No. 1548. Available at SSRN:

Arnaud Mehl (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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