Figure 1 shows the time-series plot of the monthly real stock market returns (adjusted with CPI), winsorized real returns at the 1% level, and volatility estimates for the United States. Volatility is calculated as the standard deviation of 12 winsorized monthly real returns. y-axis is the percentage and y-axis is the time period. The figure shows that episodes when winsorization is applied all correspond to wars or major crises, like the Civil War, the Great Depression, and the 1908, 1987, and 2008 crises, where volatility has pikes.
Figure 2 shows the volatility for each country in the sample, as their data become available. The annual volatility level is calculated as the standard deviation of the previous 12 winsorized monthly real returns scaled by sqrt(12). y-axis is volatility(%) and y-axis is the time period spans from 1800-2010. Only data for the United States and Great Britain are available from 1800, while data for France, Germany, and Australia from the mid-19th century. However, a large number of countries only developed stock markets after theWorldWar I The figure further shows that emerging countries have more volatile stock markets than developed ones.
Figure 3 shows the average volatility for sub-periods of the data, segmented by emerging and developed countries. Emerging countries are maked with red and developed with blue Average volatility levels for sub-periods for developed and emerging countries separately. The pre-gold (1800-1872), gold (1873-1913), interwar (1919-1938), Bretton Woods (1949-1972), and Great Moder- ation (1985-2006) periods as well as the whole sample period (1800-2010), are considered. The annual volatility level is calculated as the standard deviation of the previous 12 winsorized monthly real returns scaled by sqrt(12). y-axis is volatility(%) and y-axis is the time period marking the subperiods used Within the periods we consider, financial volatility is the highest during the 1985-2006 period, with the interwar years not far behind. Gold standard era has the lovest volatility.
Figure 4 shows the average monthly return correlations of all, developed and emerging countries, separately. The average correlation between the emerging countries' and the United States' returns are also presented. The pre-gold (1800-1872), gold (1873-1913), interwar (1919-1938), Bretton Woods (1949-1972), and Great Moder- ation (1985-2006) periods as well as the whole sample period (1800-2010), are considered. The annual volatility level is calculated as the standard deviation of the previous 12 winsorized monthly real returns scaled by sqrt(12). y-axis is volatility(%) and y-axis is the time period marking the subperiods used Emerging countries are maked with red and developed with blue Within our sample, stock markets have always been quite related to each other. In the earliest period correlations exceed 15% and increase since then.
Figure 5 Panel Avisualizes the volatility, trend, and high and low components of volatility for gamma = 5000. Figure 5 plots annual volatility level and estimated trend, and high and low components of volatility for the United States. The annual volatility level is calculated as the standard deviation of the previous 12 winsorized monthly real returns scaled by sqrt(12). the Hodrick and Prescott (1997) filter is applied to decompose volatility level into trend and deviations from the trend In Panel (a), we mark the areas of volatility where it is both above and below the trend. In Panel (b), we plot high and low volatility. The pre-gold (1800-1872), gold (1873-1913), interwar (1919-1938), Bretton Woods (1949-1972), and Great Moder- ation (1985-2006) periods as well as the whole sample period (1800-2010), are highlighted. y-axis is volatility(%) and y-axis is the time period spans from 1800-2010. Figure 5 suggests the presence of a slow-moving, non-monotone trend spanning multiple decades, with two main peaks, corresponding to the Civil War and the Great Depression. The trend in the 1860s is around 20%, dropping to about 7% in the 1890s, increasing to 27% during the interwar period, and decreasing back to 8% in the 1960s.
Figure 6 plots the number of countries with available volatility and crisis data. Volatility data is marked with red and crisis data with blue. y-axis is the number of countries and y-axis is the time period spans from 1800-2010. More crisis data are available than volatility data, especially at the beginning of the sample period. For example, volatility is available only for the United States, Great Britain, Germany, and France until the mid-1800s. In the 1920s the sample covers 10 countries, reaching 30 countries by the 1940s.