1. Stock market volatility spikes after major shocks Note: CBOE VXO index of % implied volatility, on a hypothetical at the money S&P100 option 30 days to expiry, from 1986 to 2004. Pre 1986 the VXO index is unavailable, so actual monthly returns volatilities calculated as the monthly standard-deviation of the daily S&P500 index normalized to the same mean and variance as the VXO index when they overlap (1986-2004). Actual and implied volatility correlated at 0.874. The market was closed for 4 days after 9/11, with implied volatility levels for these 4 days interpolated using the European VX1 index, generating an average volatility of 58.2 for 9/11 until 9/14 inclusive. * For scaling purposes the monthly VOX was capped at 50 affecting the Black Monday month. Un-capped value for the Black Monday month is 58.2. OPEC II Monetary turning point Black Monday* Gulf War I Asian Crisis Russia & LTCM 9/11 Enron Gulf War II Implied Volatility Actual Volatility Afghanistan JFK assassinated Cuban missile crisis Cambodia, Kent State OPEC I Franklin National Annualized standard deviation (%) Vietnam build-up

2. Stock market levels respond very differently Note: S&P500 monthly index from 1986 to 1962. Real de-trended by deflating by monthly “All urban consumers” price index, converting to logs, removing the time trend, and converting back into levels. The coefficient (s.e.) on years is 0.070 (0.002), implying a real average trend growth rate of 7.0% over the period. OPEC II Monetary cycle turning point Black Monday 3 Gulf War I Asian Crisis Russian & LTCM Default September 11 4 WorldCom & Enron Gulf War II Afghanistan JFK assassinated Cuban missile crisis Cambodia, Kent State Vietnam OPEC I, Arab- Israeli War Franklin National financial crisis

3. 9/11 Volatility was very high during the Great Depression Note: Volatility of the daily returns index from “Indexes of United States Stock Prices from 1802 to 1987” by Schwert (1990). Contains daily stock returns to the Dow Jones composite portfolio from 1885 to 1927, and to the Standard and Poor’s composite portfolio from 1928 to 1962. Figures plots monthly returns volatilities calculated as the monthly standard-deviation of the daily index, with a mean and variance normalisation for comparability following exactly the same procedure as for the volatility data from 1962 to 1985 in figure 1. Contact nbloom@stanford.edu for the data.nbloom@stanford.edu The Great Depression Recession of 1937 Oil & coal strike Banking panic Annualized standard deviation (%)