What causes democratic waves? This article puts forward a theory of institutional waves that focuses on the effects of systemic transformations. It argues that abrupt shifts in the distribution of power among leading states create unique and powerful incentives for sweeping domestic reforms. A variety of statistical tests reveals strong support for the idea that shifts in hegemonic power have shaped waves of democracy, fascism, and communism in the twentieth century, independent of domestic factors or horizontal diffusion. These “hegemonic shocks” produce windows of opportunity for external regime imposition, enable rising powers to rapidly expand networks of trade and patronage, and inspire imitators by credibly revealing hidden information about relative regime effectiveness to foreign audiences. I outline these mechanisms of coercion, influence, and emulation that connect shocks to waves, empirically test their relationship, and illustrate the theory with two case studies—the wave of democratic transitions after World War I, and the fascist wave of the late interwar period. In sum, democracy in the twentieth century cannot be fully understood without examining the effects of hegemonic shocks.