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Why Does Stock Market Volatility Change Over Time?
Author(s) -
SCHWERT G. WILLIAM
Publication year - 1989
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1989.tb02647.x
Subject(s) - volatility (finance) , economics , volatility swap , volatility risk premium , volatility smile , stock market , leverage effect , stock (firearms) , implied volatility , financial economics , monetary economics , econometrics , autoregressive conditional heteroskedasticity , geography , context (archaeology) , archaeology
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.