IDEAS home Printed from https://ideas.repec.org/a/eee/jfinec/v79y2006i3p693-707.html
   My bibliography  Save this article

Volatility in an era of reduced uncertainty: Lessons from Pax Britannica

Author

Listed:
  • Brown, William Jr.
  • Burdekin, Richard C.K.
  • Weidenmier, Marc D.

Abstract

Although it has been well established that financial volatility is related to news and macroeconomic shocks, there has been less emphasis on the importance of underlying economic and political stability. In this paper we study the behavior of consol returns since 1729 and identify a greater-than-50% decline in volatility from the end of the Napoleonic wars in 1815 until the First World War. News events and macroeconomic variables cannot account for this extended period of reduced volatility. Underlying political stability under Pax Britannica seems to be a more likely explanation, however.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Brown, William Jr. & Burdekin, Richard C.K. & Weidenmier, Marc D., 2006. "Volatility in an era of reduced uncertainty: Lessons from Pax Britannica," Journal of Financial Economics, Elsevier, vol. 79(3), pages 693-707, March.
    • Handle: RePEc:eee:jfinec:v:79:y:2006:i:3:p:693-707
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304-405X(05)00178-9
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bordo, Michael D. & Dueker, Michael J. & Wheelock, David C., 2003. "Aggregate price shocks and financial stability: the United Kingdom 1796-1999," Explorations in Economic History, Elsevier, vol. 40(2), pages 143-169, April.
    2. Berry, Thomas D & Howe, Keith M, 1994. "Public Information Arrival," Journal of Finance, American Finance Association, vol. 49(4), pages 1331-1346, September.
    3. Schwert, G. William, 1989. "Business cycles, financial crises, and stock volatility," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 31(1), pages 83-125, January.
    4. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    5. William Schwert, G., 2002. "Stock volatility in the new millennium: how wacky is Nasdaq?," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 3-26, January.
    6. Ray C. Fair, 2002. "Events That Shook the Market," The Journal of Business, University of Chicago Press, vol. 75(4), pages 713-732, October.
    7. Jones, Charles M. & Lamont, Owen & Lumsdaine, Robin L., 1998. "Macroeconomic news and bond market volatility," Journal of Financial Economics, Elsevier, vol. 47(3), pages 315-337, March.
    8. G.K. Harley, 1976. "Goschens's conversion of the National Debt and the Yield on Consols," Economic History Review, Economic History Society, vol. 29(1), pages 101-106, February.
    9. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    10. Mitchell, Mark L & Mulherin, J Harold, 1994. "The Impact of Public Information on the Stock Market," Journal of Finance, American Finance Association, vol. 49(3), pages 923-950, July.
    11. Ederington, Louis H & Lee, Jae Ha, 1993. "How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-1191, September.
    12. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
    13. Banerjee, Anindya & Lumsdaine, Robin L & Stock, James H, 1992. "Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 271-287, July.
    14. Robert J. Barro, 1999. "Notes on Optimal Debt Management," Journal of Applied Economics, Taylor & Francis Journals, vol. 2(2), pages 281-289, November.
    15. repec:bla:econom:v:56:y:1989:i:221:p:61-70 is not listed on IDEAS
    16. repec:bla:jfinan:v:44:y:1989:i:5:p:1115-53 is not listed on IDEAS
    17. Bagehot, Walter, 1873. "Lombard Street: A Description of the Money Market," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number bagehot1873.
    18. Voth, Hans-Joachim, 2002. "Why was Stock Market Volatility so High During the Great Depression? Evidence from 10 Countries During the Interwar Period," CEPR Discussion Papers 3254, C.E.P.R. Discussion Papers.
    19. David H. Cutler & James M. Poterba & Lawrence H. Summers, 1988. "What Moves Stock Prices?," Working papers 487, Massachusetts Institute of Technology (MIT), Department of Economics.
    20. William Schwert, G., 1989. "Business cycles, financial crises, and stock volatility : Reply to Shiller," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 31(1), pages 133-137, January.
    21. Niederhoffer, Victor, 1971. "The Analysis of World Events and Stock Prices," The Journal of Business, University of Chicago Press, vol. 44(2), pages 193-219, April.
    22. Klovland, Jan Tore, 1994. "Pitfalls in the Estimation of the Yield on British Consols, 1850–1914," The Journal of Economic History, Cambridge University Press, vol. 54(1), pages 164-187, March.
    23. Fair, Ray C., 2003. "Shock effects on stocks, bonds, and exchange rates," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 307-341, June.
    24. repec:kap:eurfin:v:10:y:2006:i:4:p:613-644 is not listed on IDEAS
    25. Haugen, Robert A & Talmor, Eli & Torous, Walter N, 1991. "The Effect of Volatility Changes on the Level of Stock Prices and Subsequent Expected Returns," Journal of Finance, American Finance Association, vol. 46(3), pages 985-1007, July.
    26. Penman, Stephen H., 1987. "The distribution of earnings news over time and seasonalities in aggregate stock returns," Journal of Financial Economics, Elsevier, vol. 18(2), pages 199-228, June.
    27. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-547, August.
    28. Heather Mitchell & Rob Brown & Stephen Easton, 2002. "Old volatility - ARCH effects in 19th century consol data," Applied Financial Economics, Taylor & Francis Journals, vol. 12(4), pages 301-307.
    29. Neal, Larry, 2000. "How it all began: the monetary and financial architecture of Europe during the first global capital markets, 1648 1815," Financial History Review, Cambridge University Press, vol. 7(02), pages 117-140, October.
    30. Larry Neal, 1998. "The financial crisis of 1825 and the restructuring of the British financial system," Review, Federal Reserve Bank of St. Louis, issue May, pages 53-76.
    31. Michael J. Fleming & Eli M. Remolona, 1999. "Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information," Journal of Finance, American Finance Association, vol. 54(5), pages 1901-1915, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pandey, Dharen Kumar & Lucey, Brian M. & Kumar, Satish, 2023. "Border disputes, conflicts, war, and financial markets research: A systematic review," Research in International Business and Finance, Elsevier, vol. 65(C).
    2. Alexander Opitz, 2018. "“Comrades, Let's March!”.† The Revolution of 1905 and its impact on financial markets," European Review of Economic History, European Historical Economics Society, vol. 22(1), pages 28-52.
    3. David le Bris, 2018. "What is a market crash?," Economic History Review, Economic History Society, vol. 71(2), pages 480-505, May.
    4. In Huh & Ju Hyun Pyun, 2018. "Does Nuclear Uncertainty Threaten Financial Markets? The Attention Paid to North Korean Nuclear Threats and Its Impact on South Korea's Financial Markets," Asian Economic Journal, East Asian Economic Association, vol. 32(1), pages 55-82, March.
    5. Campbell, Gareth & Quinn, William & Turner, John D. & Ye, Qing, 2015. "What moved share prices in the nineteenth-century London stock market?," QUCEH Working Paper Series 15-06, Queen's University Belfast, Queen's University Centre for Economic History.
    6. Gareth Campbell & William Quinn & John D. Turner & Qing Ye, 2018. "What moved share prices in the nineteenth†century London stock market?," Economic History Review, Economic History Society, vol. 71(1), pages 157-189, February.
    7. Fagiani, Riccardo & Hakvoort, Rudi, 2014. "The role of regulatory uncertainty in certificate markets: A case study of the Swedish/Norwegian market," Energy Policy, Elsevier, vol. 65(C), pages 608-618.
    8. Roe, Mark J. & Siegel, Jordan I., 2011. "Political instability: Effects on financial development, roots in the severity of economic inequality," Journal of Comparative Economics, Elsevier, vol. 39(3), pages 279-309, September.
    9. Gawon Yoon, 2011. "Changing volatility of long-term UK interest rates during Pax Britannica," Applied Economics Letters, Taylor & Francis Journals, vol. 18(1), pages 69-74.
    10. Berkman, Henk & Jacobsen, Ben & Lee, John B., 2011. "Time-varying rare disaster risk and stock returns," Journal of Financial Economics, Elsevier, vol. 101(2), pages 313-332, August.
    11. Joseph Davis & Marc D. Weidenmier, 2016. "America's First Great Moderation," NBER Working Papers 21856, National Bureau of Economic Research, Inc.
    12. PARYS, Wilfried, 2020. "David Ricardo, the Stock Exchange, and the Battle of Waterloo: Samuelsonian legends lack historical evidence," Working Papers 2020009, University of Antwerp, Faculty of Business and Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fair, Ray C., 2003. "Shock effects on stocks, bonds, and exchange rates," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 307-341, June.
    2. Thomas Schuster, 2003. "News Events and Price Movements. Price Effects of Economic and Non-Economic Publications in the News Media," Finance 0305009, University Library of Munich, Germany.
    3. Bomfim, Antulio N., 2003. "Pre-announcement effects, news effects, and volatility: Monetary policy and the stock market," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 133-151, January.
    4. Antulio N. Bomfim, 2000. "Pre-announcement effects, news, and volatility: monetary policy and the stock market," Finance and Economics Discussion Series 2000-50, Board of Governors of the Federal Reserve System (U.S.).
    5. Alain P. Chaboud & Sergey V. Chernenko & Edward Howorka & Raj S. Krishnasami Iyer & David Liu & Jonathan H. Wright, 2004. "The high-frequency effects of U.S. macroeconomic data releases on prices and trading activity in the global interdealer foreign exchange market," International Finance Discussion Papers 823, Board of Governors of the Federal Reserve System (U.S.).
    6. Habib Rahman & Hasan Mohsin, 2011. "Monetary Policy Announcements and Stock Returns: Evidence from the Pakistani Market," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 18(2), pages 342-360, December.
    7. Chen, Carl R. & Mohan, Nancy J. & Steiner, Thomas L., 1999. "Discount rate changes, stock market returns, volatility, and trading volume: Evidence from intraday data and implications for market efficiency," Journal of Banking & Finance, Elsevier, vol. 23(6), pages 897-924, June.
    8. Chang, Yuanchen & Taylor, Stephen J., 2003. "Information arrivals and intraday exchange rate volatility," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(2), pages 85-112, April.
    9. Andersen, Torben G. & Bollerslev, Tim & Cai, Jun, 2000. "Intraday and interday volatility in the Japanese stock market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(2), pages 107-130, June.
    10. Mauro Bernardi & Leopoldo Catania & Lea Petrella, 2014. "Are news important to predict large losses?," Papers 1410.6898, arXiv.org, revised Oct 2014.
    11. Ray Fair, 2001. "Shock Effects on Stocks, Bonds, and Exchange Rates," Yale School of Management Working Papers ysm172, Yale School of Management, revised 01 Aug 2001.
    12. repec:jns:jbstat:v:227:y:2007:i:1:p:3-26 is not listed on IDEAS
    13. Don Bredin & Gerard O’Reilly & Simon Stevenson, 2007. "Monetary Shocks and REIT Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 315-331, October.
    14. Pal, Debdatta, 2022. "Does hospitality industry stock volatility react asymmetrically to health and economic crises?," Economic Modelling, Elsevier, vol. 108(C).
    15. Shogbuyi, Abiodun & Steeley, James M., 2017. "The effect of quantitative easing on the variance and covariance of the UK and US equity markets," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 281-291.
    16. Imane El Ouadghiri & Valérie Mignon & Nicolas Boitout, 2016. "On the impact of macroeconomic news surprises on Treasury-bond returns," Annals of Finance, Springer, vol. 12(1), pages 29-53, February.
    17. Campbell, Gareth & Quinn, William & Turner, John D. & Ye, Qing, 2015. "What moved share prices in the nineteenth-century London stock market?," QUCEH Working Paper Series 15-06, Queen's University Belfast, Queen's University Centre for Economic History.
    18. Cuevas, Conrado & Bernhardt, Dan, 2023. "When financial advice rocks the market," Emerging Markets Review, Elsevier, vol. 56(C).
    19. Salman Syed Ali & Khalid Mustafa, 2001. "Testing Semi-strong Form Efficiency of Stock Market," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(4), pages 651-674.
    20. Franses,Philip Hans & Dijk,Dick van, 2000. "Non-Linear Time Series Models in Empirical Finance," Cambridge Books, Cambridge University Press, number 9780521779654.
    21. Blair, Bevan J. & Poon, Ser-Huang & Taylor, Stephen J., 2001. "Modelling S&P 100 volatility: The information content of stock returns," Journal of Banking & Finance, Elsevier, vol. 25(9), pages 1665-1679, September.

    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • N2 - Economic History - - Financial Markets and Institutions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:79:y:2006:i:3:p:693-707. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.