Does Financial Regulation Matter

Absract: The impact of the US 1933/34 Acts, the first national financial regulation acts in the world, on financial markets have been under debates since Stigler (1964). Major findings in the literature is that financial regulation enacted by these laws is at best being ineffective to improve financial markets until some recent studies imply indirectly that they could be effective. By studying daily returns of NYSE data from 1890 to 1970, this paper provides systematic evidence that the 1933/34 Acts have substantially reduced market volatilities after controlling for Great Depression effect and macroeconomic variables. Moreover, we show that even when we treat the existence and the date of the volatility changes as unknown, statistically identified structural changes are fully
consistent with the above results that the volatility reduction time coincide with the enacting of the Acts.

Does Financial Regulation Matter.pdf