Uncertainty Shocks and Equity Return Jumps and Volatility During the Great Depression

Stock market volatility was extremely high during the Great Depression relative to any other period in American history. At the same time, large negative and positive discontinuous jumps in stock returns can be detected using the Barndor-Nielsen and Shephard (2004) test for jumps in financial time-series. These jumps coincided with periods when stock volatility was high as the arrival of new information about the uncertain future drove both the record stock volatility and the record jumps in stock returns. A timeline of the Depression is outlined, with important events that drove uncertainty highlighted such as the collapse of the banking system, policy changes, the breakdown of the gold standard, monetary policy uncertainty, and war jitters. JEL classification: