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Discussion Paper Details

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

Author(s): Hans-Joachim Voth

Publication Date: March 2002

Keyword(s): great depression, political uncertainty, stock price volatility and worker militancy

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Voth, H. 2002. 'Why was Stock Market Volatility so High During the Great Depression? Evidence from 10 Countries During the Interwar Period'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3254