Why Was Stock Market Volatility so High During the Great Depression? Evidence from 10 Countries during the Interwar Period, Centre for Economic Policy Research Working Paper No. 3254, available at http://ssrn.com/abstract_id=306770

The extreme levels of stock price volatility found during the Great Depression have often been attributed to political uncertainty. This paper performs an exphcit test of the Merton/Schwert hypothesis that doubts about the survival of the capitahst system were partly responsible. It does so by using a panel data set on poHtical unrest, demonstrations and other indicators of instability in a set of 10 developed countries during the interwar period. Fear of worker mUitancy and a possible revolution can explain a substantial part of the increase in stock market volatility during the Great Depression