Why Does Stock Market Volatility Change Over Time?

G. William Schwert

NBER Working Paper No. 2798 (Also Reprint No. r1368)
Issued in March 1990
NBER Program(s):   ME

This paper analyzes the relation of stock volatility with real and nominal macroeconomic volatility, financial leverage, stock trading activity, default risk, and firm profitability using monthly data from 1857-1986. An important fact, previously noted by Officer [l973], is that stock return variability was unusually high during the 1929-1940 Great Depression. Moreover, leverage has a relatively small effect on stock volatility. The amplitude of the fluctuations in aggregate stock volatility is difficult to explain using simple models of stock valuation.

(877 K)

(543 K)

Published: The Journal of Finance, Vol. XLIV, No. 5, pp. 1115-1153, (December 1989).

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