NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Stock Volatility and the Great Depression

Gustavo S. Cortes, Marc D. Weidenmier

NBER Working Paper No. 23554
Issued in June 2017, Revised in August 2017
NBER Program(s):Asset Pricing, Development of the American Economy

Stock return volatility during the Great Depression has been labeled a “volatility puzzle” because the standard deviation of stock returns was two to three times higher than any other period in American history (Officer, 1973; Wilson, Sylla, and Jones; 1990). We investigate the “volatility puzzle” using a new series of building permits, a forward-looking measure of economic activity. Our results suggest that the volatility of building permit growth largely explains the high level of stock volatility during the Great Depression. Markets factored in the possibility of a forthcoming economic disaster.

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Document Object Identifier (DOI): 10.3386/w23554

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