Why Does Stock Volatility Change Over Time?
University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research
Journal of Finance, 44 (December 1989) 1115-1153
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[1973], 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.
Key words: Stock Market, Volatility, Inflation, Interest Rates, Leverage, Diversification, ARIMA
JEL Classifications: G12, G14, E32
Cited 117 times in the SSCI through April 1996
© Copyright 1989, American Finance Association
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