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Why Does Stock Market Volatility Change over Time?

  • Schwert, G William

This paper analyzes the relation of stock volatility with real and nominal macroeconomic volatility, economic activity, financial leverage, and stock trading activity using monthly data from 1857 to 1987. An important fact, previously noted by Robert R. Officer (1973), is that stock return variability was unusually high during the 1929-39 Great Depression. While aggregate leverage is significantly correlated with volatility, it explains a relatively small part of the movements in stock volatility. The amplitude of the fluctuations in aggregate stock volatility is difficult to explain using simple models of stock valuation, especially during the Great Depression. Copyright 1989 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 44 (1989)
Issue (Month): 5 (December)
Pages: 1115-53

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Handle: RePEc:bla:jfinan:v:44:y:1989:i:5:p:1115-53
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  1. Campbell, J.Y. & Shiller, R.J., 1988. "Stock Prices, Earnings And Expected Dividends," Papers 334, Princeton, Department of Economics - Econometric Research Program.
  2. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September.
  3. French, Kenneth R. & Roll, Richard, 1986. "Stock return variances : The arrival of information and the reaction of traders," Journal of Financial Economics, Elsevier, vol. 17(1), pages 5-26, September.
  4. Andrew Abel, . "Stock Prices Under Time-Varying Dividend Risk: An Exact Solution in an Infinite-Horizon General Equilibrium Model," Rodney L. White Center for Financial Research Working Papers 15-88, Wharton School Rodney L. White Center for Financial Research.
  5. Schwert, G. William, 1987. "Effects of model specification on tests for unit roots in macroeconomic data," Journal of Monetary Economics, Elsevier, vol. 20(1), pages 73-103, July.
  6. Fama, Eugene F. & French, Kenneth R., 1988. "Dividend yields and expected stock returns," Journal of Financial Economics, Elsevier, vol. 22(1), pages 3-25, October.
  7. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, December.
  8. Fama, Eugene F, 1976. "Inflation Uncertainty and Expected Returns on Treasury Bills," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 427-48, June.
  9. Wilson, Jack W & Jones, Charles P, 1987. "A Comparison of Annual Common Stock Returns: 1871-1925 with 1926-85," The Journal of Business, University of Chicago Press, vol. 60(2), pages 239-58, April.
  10. Scholes, Myron & Williams, Joseph, 1977. "Estimating betas from nonsynchronous data," Journal of Financial Economics, Elsevier, vol. 5(3), pages 309-327, December.
  11. Raymond W. Goldsmith & Robert E. Lipsey & Morris Mendelson, 1963. "Studies in the National Balance Sheet of the United States, Volume 2," NBER Books, National Bureau of Economic Research, Inc, number gold63-2, December.
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