Obtaining Implied Volatilities From the New York Money Market: 1890 to 1934

33 Pages Posted: 18 Mar 2020

Date Written: February 21, 2020

Abstract

This paper obtains monthly implied volatilities of the New York securities market from 1890 to 1934 from interest rate differentials. The implied volatilities did predict the 1929 crash but no other financial crisis. The historical implied volatilities are similar to their modern (2008-2019) counterparts. I find that before 1924, implied volatilities were autoregressive and seasonal, and that after 1924 these series behave in a non-stationary manner, echoing results by Mankiw, Miron and Weil (1987) for interest rates. The paper uses a Heckman method to correct for censored six month interest rate data due to anti usury laws from that period.

Keywords: Implied volatility, financial history, financial crises, Money market, margin requirements, Gold standard

JEL Classification: D53, E32, E44, G12, G13, G28, N20

Suggested Citation

Cantillo, Miguel, Obtaining Implied Volatilities From the New York Money Market: 1890 to 1934 (February 21, 2020). Available at SSRN: https://ssrn.com/abstract=3542421 or http://dx.doi.org/10.2139/ssrn.3542421

Miguel Cantillo (Contact Author)

Universidad de Costa Rica ( email )

San Jose
Costa Rica

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