Causes of High Volatility and Stock Market Crises in the Developed Economies

This research paper aims to state possible causes of high return volatility and stock markets' crises in developed economies, using a sample of seven stock developed markets, covering a period of thirty-six months (1998 to 2000). In order to determine which are the most predicting variables that have significant influence on increasing stock volatility and in initiating a stock market crisis compared to other factors. The selected causes are the most reported causes of increasing stock volatility and may be expressed in quantitative data. They include the monthly changes in: stock trading volume, national inflation rate, the government bond yield, the trade value of bonds, the national currency exchange rate to US $, the treasury bill rate, and the deposit interest rate. The backward multiple-regression analysis technique was used, to examine the relationship between monthly changes of stock price indices as dependent variable and the associated selected seven predicting measures as independent variables. The paper concluded that changing of national exchange rate was the most predicting variable compared to other variables in most of the selected developed countries, followed by change in stock trading volume and deposit interest rate respectively. On the other side, this study found that changing of inflation rate was the least predicting variables of stock price volatility in the majority of stock markets