Stock volatility, return jumps and uncertainty shocks during the Great Depression

摘要

There are a multitude of explanations for the depth and length of the Great Depression, of which uncertainty has been proposed as one possible explanation (Romer 1990). The 1930s not only saw extreme declines in output and prices, but stock volatility was also at record highs (Schwert 1989). This high stock volatility was generated by a series of discontinuous jumps as news about uncertainty arrived regularly during the 1930s, as shown by applying the Barndorff-Nielsen and Shephard (2006) test for jumps in a time-series. To provide a more historical narrative for these jumps, I outline some key events during the Great Depression that generated a sense of uncertainty for businesses and households which occurred contemporaneously to these extreme jumps. While much of the literature has placed Roosevelt's New Deal as a primary source of uncertainty, I do not find much evidence for this hypothesis, and instead find that banking crises, the breakdown of the gold standard, popular unrest and uncertainty related to the brewing war in Europe were primarily responsible for both jumps in returns and the uncertainty of the 1930s.