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Why Does Stock Market Volatility Change Over Time?

G. William Schwert
The Journal of Finance
Vol. 44, No. 5 (Dec., 1989), pp. 1115-1153
Published by: Wiley for the American Finance Association
DOI: 10.2307/2328636
Stable URL: http://www.jstor.org/stable/2328636
Page Count: 39
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Why Does Stock Market Volatility Change Over Time?
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Abstract

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 Officer (1973), is that stock return variability was unusually high during the 1929-1939 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.

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