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
Date Written: March 2002
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: Suggested Citation