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Sunday, July 19, 2020 | History

2 edition of Why was stock market volatility so high during the Great Depression? found in the catalog.

Why was stock market volatility so high during the Great Depression?

evidence from 10 countries during the interwar period

by Hans-Joachim Voth

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  • 29 Currently reading

Published by Massachusetts Institute of Technology, Dept. of Economics in Cambridge, MA .
Written in English


About the Edition

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

Edition Notes

StatementHans-Joachim Voth
SeriesWorking paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 02-09, Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 02-09.
ContributionsMassachusetts Institute of Technology. Dept. of Economics
The Physical Object
Pagination44 p. :
Number of Pages44
ID Numbers
Open LibraryOL24646559M
OCLC/WorldCa51766215

Daily volatility in recent years was nowhere near what it was during the Great Depression. And over the last five years it's actually lower than it was in the : Morgan Housel. Up-to-Date Research Sheds New Light on This Area. Taking into account the ongoing worldwide financial crisis, Stock Market Volatility provides insight to better understand volatility in various stock markets. This timely volume is one of the first to draw on a range of international authorities who offer their expertise on market volatility in developed, emerging, and frontier : Hardcover.

In , the stock market crash spelled an end to the prosperity of the s. The stock market crash marked the beginning of a period of economic hard times known as the Great Depression which lasted through the s. During the s, Many Americans had seen how some had gotten rich by investing in the stock market. They wanted to invest, too. Not everybody did - obviously. Most people aren’t aware that the market actually topped in August of Black Friday and Black Monday were both traumatic, but so too were the market responses in the days that followed when the markets went back.

  The political history showed that during the Great Depression, aggregate stock market volatility in a large number of advanced economies reached levels not seen before or since. Schwert (b) estimates that in the US, there was a two- . Market Volatility proposes an innovative theory, backed by substantial statistical evidence, on the causes of price fluctuations in speculative markets. It challenges the standard efficient markets model for explaining asset prices by emphasizing the significant role that popular opinion or psychology can play in price volatility. Why does the stock market crash from time to time?


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Why was stock market volatility so high during the Great Depression? by Hans-Joachim Voth Download PDF EPUB FB2

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 by: volatility during the Great Depression stands out even when compared to the volatility of market returns over a time span of more than years () that includes the Great Recession.

A convincing explanation of why stock volatility was so high during the Great Depression has eluded scholars.1 This has led some. Increased stock market volatility during the Great Depression, for example, could reflect not only increased short-run uncertainty but also more fundamental concerns about whether the capitalist Author: Hans-Joachim Voth.

DuringtheGreatDepression,aggregatestockmarketvolatilityinalarge numberofadvancedeconomiesreachedlevelsnotseenbeforeorsince. Schwert(b)estimatesthatintheUS. We investigate the “volatility puzzle” using a new series of building permits, a forward-looking measure of economic activity.

Our results suggest that the volatility of building permit growth largely explains the high level of stock volatility during the Great Depression. Markets factored in the possibility of a forthcoming economic by: 1. During the Great Depression, stock prices on average fell more than 80%.

Dividends fell only about 11%. (See Chart below) As Yale University professor Robert Shiller has found, historically dividend volatility was about 15% of price volatility (meaning dividend declines were a fraction of price declines in recessions.).

In fact, you are probably assuming a total disaster. Even more so considering you put your money in during the peak. Consider some earnings-per-share data during the early years.

For instance, Coca-Cola stock traded between 13x and 19x annual profit in the year of the crash. It traded at about 8x annual earnings four years later. Rather, it rose at the same time that leverage rose during the Great Depression, so the large estimates of α 1 are caused by omitting a correlated regressor.

Again, this evidence shows that leverage alone cannot explain the historical movements in stock volatility. Cited by: The U.S. homeownership rate reached an all-time high in at percent.

It remained high until the housing bubble burst during the Great Recession and then fell to a year low of percent. You remember the foreclosure wave—I don’t need to remind you. All those people became renters, at least temporarily, helping to buoy rents. The CBOE Volatility Index VIX, %, an options-based measure of expectations for volatility over the coming 30 days, remains subdued.

Invest Like It's the Great Depression Again That helps explain why 84% of the companies listed on the New York Stock Exchange saw their shares Author: Chuck Saletta. The stock market is a reflection of the economy. The crash of did not cause the Depression, but it signaled the beginning of the Depression.

To understand what happened back then, you have to remember 2 things. First, the U.S. economy was muc. This high stock volatility was generated by a series of discontinuous jumps as news about uncertainty arrived regularly during the s, as shown by applying the Barndorff-Nielsen and Shephard () test for jumps in a time-series.

Equity market contagion during the global financial crisis: why the Great Depression lasted so long and Cited by: 4.

The stock market crash and the ensuing Great Depression () had a direct impact on nearly every segment of society and altered an entire generation's perspective and relationship to the Author: Leslie Kramer.

The stock market crash on Octo set in motion a series of events that led to the Great Depression, but in fact, the American economy and global economy had been in turmoil six months prior to Black Tuesday, and a variety of factors before and after that fateful date in October caused and exacerbated the Great Depression.

The Stock Market Crash was when, flooded with investments (particularly those buying "on margin, or paying a fraction of the total price or a transaction and the broker lending the trader the rest), the Stock Market crashed after those who bought on margin were forced to either put up more money or sell their stock, choosing to sell.

March 6,was the S&P 's darkest hour during the financial crisis, and since then everyone has studied investor behavior to.

Stock volatility in the Depression: Still a puzzle • But why was stock volatility so high during the Depression. • Still a Puzzle in the Finance Literature.

• In theory, the extreme volatile behavior of other series (either in the real or financial side) could explain the huge spikes in stock volatility observed in the s • Example. It was one of the darkest days in American history, more than earning its moniker of “Black Tuesday.” That day came 83 years ago, Oct.

29,when the Dow Jones Industrial Average plunged. Volatility spooks investors when the Dow Jones Industrial Average swings points up or down a day. Stock market losses suffered during the stock market crash were devastating.

The Dow dropped 53% from its high of 14, in. Depression is a severe and prolonged downturn in economic activity. In economics, a depression is commonly defined as an extreme recession that lasts two or more years.

A depression is Author: Daniel Liberto.Stock market crashes hurt a lot. The crash of wiped out 30 years of gains. The stock market crash of took the Dow back to where it was in At the lows inthe market was trading at prices seen in ! It makes sense that investors spend 95% of their energy worrying about something that has happened less than 5% of the.

The stock crash, for example, was prolonged because the financial contagion (so to speak) spread from subprime real estate, where it started, to conventional real estate, to the banking.