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

Hans-Joachim Voth

No 3254, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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: 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)
Date: 2002-03
New Economics Papers: this item is included in nep-cfn, nep-fmk, nep-mac and nep-rmg
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