British Stock Market Volatility: Before and After the 1929 NYSE Stock Market Crash

by

Faculty Sponsor: Professor Grossman, Economics Department

Jiaxuan Chen
Jiaxuan Chen

Jiaxuan Chen is a rising senior (’23)  who majored in Biology, Computer Science and Economics.  He grew up in Fujian, China and he loves listening to country music, reading, and writing Chinese calligraphy. He would like to use his triple major background to become a data analyst in financial firms in the future. 

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Abstract: The stock market volatility can be measured by the implied volatility of options. To analyze the British stock market volatility before and after the NYSE stock market crash in 1929, we looked into the options price data across different sectors in the British stock market and calculated the implied volatility based on the stock bid price using Black Scholes Merton Option Pricing Formula. We found that there was a significant increase in implied volatility after the Great Depression in 1929 overall. Among oil, rubber, and newspaper sectors, we also found a significant increase in implied volatility. Future work will focus on collecting more data after 1929 to consolidate the conclusions found. Besides, it will also be interesting to calculate the implied volatility for US stocks traded in London to see if there is a meaningful implied volatility difference between US stocks and British stocks traded in London.

Acknowledgment: I sincerely appreciate the patience and help from Professor Grossman and Professor Kaparakis in completing this project. I also want to thank Professor Oleinikov and Professor Yao for providing guidance in Python OCR modules during the data collection stage of this project.

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