"Excess Volatility" and the German Stock Market, 1870-1990

This paper uses long-run real price and dividends series to investigate for the German stock market the questions asked of the U.S. market by Shiller (1989). It tries to determine in what periods and to what degree the Germanstock market has also possessed "excess volatility" over the past century. It finds no evidence or excess volatility in the pre-WWI German stock market. By contrast, there is some evidence of excess- volatiltiy in the post-WWII German stock market. The role played by the German Great Banks in the pre- WWI market might be the cause of the low comparative volatility of German stock indices before 1914.