Why Was Stock Market Volatility so High During the Great Depression? Evidence from 10 Countries During the Interwar Period

42 Pages Posted: 9 Apr 2002

See all articles by Hans-Joachim Voth

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society; Centre for Economic Policy Research (CEPR)

Date Written: March 2002

Abstract

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: E66, G12, G14, G18, N12, N14, N22, N24

Suggested Citation

Voth, Hans-Joachim, Why Was Stock Market Volatility so High During the Great Depression? Evidence from 10 Countries During the Interwar Period (March 2002). CEPR Discussion Paper No. 3254. Available at SSRN: https://ssrn.com/abstract=306770

Hans-Joachim Voth (Contact Author)

University of Zurich - UBS International Center of Economics in Society ( email )

Raemistrasse 71
Zuerich, 8006
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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