Why was Stock Market Volatility so High During the Great Depression? Evidence from 10 Countries During the Interwar Period
No 3254, CEPR Discussion Papers from C.E.P.R. Discussion Papers
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: great depression; political uncertainty; stock price volatility; worker militancy (search for similar items in EconPapers)
JEL-codes: E66 G12 G14 G18 N12 N14 N22 N24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-fmk, nep-mac and nep-rmg
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