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Volatility in an Era of Reduced Uncertainty: Lessons from Pax Britannica

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Author Info
William O. Brown
Richard C. K. Burdekin
Marc D. Weidenmier

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Abstract

Although it has been well established that financial volatility is related to news and macroeconomic shocks, there has been less emphasis on the importance of underlying economic and political stability. In this paper we study the behavior of consol returns since 1729 and identify a greater-than-50% decline in volatility from the end of the Napoleonic wars in 1815 until the First World War. News events and macroeconomic variables cannot account for this extended period of reduced volatility. Underlying political stability under Pax Britannica seems to be a more likely explanation, however.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11319.

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Date of creation: May 2005
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Handle: RePEc:nbr:nberwo:11319

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E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
N2 - Economic History - - Financial Markets and Institutions

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  19. Haugen, Robert A & Talmor, Eli & Torous, Walter N, 1991. " The Effect of Volatility Changes on the Level of Stock Prices and Subsequent Expected Returns," Journal of Finance, American Finance Association, vol. 46(3), pages 985-1007, July. [Downloadable!] (restricted)
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