Liquidity and Asset Returns in Times of Turmoil

This research project examines the role of political and social unrest by analyzing their effects on bond and stock markets over the period 1900-2000.

Why can asset prices swing wildly in some periods? To investigate the role of political and social unrest, this project builds a new database on political instability, examining riots, demonstrations, political assassinations, and anti-government strikes. The impact of uncertainty shocks on market liquidity is also analyzed. The combined effect of political and social uncertainty shocks, on likely asset payoffs as well as on market liquidity, may explain a good part of “excess volatility.”