Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-03T08:38:20.602Z Has data issue: false hasContentIssue false

Was There a Bubble in the 1929 Stock Market?

Published online by Cambridge University Press:  03 March 2009

Peter Rappoport
Affiliation:
Assistant Professor of Economics at Rutgers University
Eugene N. White
Affiliation:
Professor of Economics at Rutgers University and Research Associate of the National Bureau of Economic Research.

Abstract

In contrast to historical accounts of the boom and crash of the 1929 stock market, recent econometric studies have concluded that there were no bubbles in the American stock market over the past one hundred years. Examining the pricing of loans to stock brokers, we find information on the lenders' perceptions of the future course of stock prices in 1929. From this market, we extract an estimate of the bubble in stock prices. This bubble component contributes significantly to explain stock price behavior, even though standard cointegration tests suggest that there was no bubble in the market.

Type
Articles
Copyright
Copyright © The Economic History Association 1993

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Allen, Frederick Lewis, Only Yesterday, An Informal History of the Nineteen-Twenties (New York, 1931).Google Scholar
Blanchard, Olivier, and Watson, Mark W., “Bubbles, Rational Expectations, and Financial Markets,” in Wachtel, Paul, ed., Crises in the Economic and Financial System (Lexington, MA, 1982), pp. 295315.Google Scholar
Board of Governors of the Federal Reserve System, Banking and Monetary Statistics (Washington, DC, 1943).Google Scholar
Campbell, John Y., and Shiller, Robert J., “Cointegration and Tests of Present Value Models,” Journal of Political Economy, 95 (10 1987), pp. 1062–88.CrossRefGoogle Scholar
Commercial and Financial Chronicle (New York, 1928 and 1929).Google Scholar
De Long, J. Bradford et al. , “Noise Trader Risk in Financial Markets,” Journal of Political Economy, 98 (08 1990), pp. 703–38.CrossRefGoogle Scholar
De Long, J. Bradford, and Shleifer, Andre, “The Stock Market Bubble of 1929: Evidence from Closed-end Mutual Funds,” this Journal, 51 (09. 1991), pp. 675700.Google Scholar
Diba, Behzad, and Grossman, Herschel I., “Explosive Rational Bubbles in Stock Prices?American Economic Review, 78 (06 1988), pp. 520–30.Google Scholar
Dice, Charles Amos, The Stock Market (Chicago, 1926).Google Scholar
Dice, Charles Amos, New Levels in the Stock Market (New York, 1929).Google Scholar
Encyclopedia of Banking and Finance (New York, 1931).Google Scholar
Fama, Eugene, and French, Kenneth, “Business Conditions and Expected Returns on Stocks and Bonds,” Journal of Financial Economics, 23 (1989), pp. 2349.CrossRefGoogle Scholar
Federal Reserve Bank of New York, Monthly Review of Credit and Business Conditions (02 1, 1929).Google Scholar
Fisher, Irving, The Stock Market Crash—and After (New York, 1930).Google Scholar
Flood, Robert P., and Hodrick, Robert J., “On Testing for Speculative Bubbles,” Journal of Economic Perspectives, 4 (Spring 1990), pp. 85101.CrossRefGoogle Scholar
Galbraith, John Kenneth, The Great Crash of 1929 (Boston, 1988).Google Scholar
Gendreau, Brian, “Three Essays in Banking History” (Ph.D. diss., University of Pennsylvania, Philadelphia, 1990).Google Scholar
Griffiss, Bartow, The New York Call Money Market (New York, 1925).Google Scholar
Gurock, Louis, Brokers' Loans and the Stock Market (New York, 1937).Google Scholar
Hamilton, James D., “On Testing for Self-fulfilling Speculative Price Bubbles,” International Economic Review, 27 (10 1986), pp. 545–52.CrossRefGoogle Scholar
Hamilton, James D., “Monetary Factors in the Great Depression,” Journal of Monetary Economics, 19 (1987), pp. 145–69.CrossRefGoogle Scholar
Hamilton, James D., and Whiteman, Charles H., “The Observable Implications of Self-Fulfilling Expectations,” Journal of Monetary Economics, 16 (11 1985), pp. 353–73.CrossRefGoogle Scholar
Jaffee, Dwight M., “Cyclical Variations in the Risk Structure of Interest Rates,” Journal of Monetary Economics, 1 (1975), pp. 309–25.CrossRefGoogle Scholar
Kindleberger, Charles P., Manias, Panics and Crashes: A History of Financial Crises (New York, 1978).CrossRefGoogle Scholar
Merton, Robert C, “On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,” Journal of Finance, 29 (05 1974), pp. 449–70.Google Scholar
Miron, Jeffrey, “Financial Panics, the Seasonality of the Nominal Interest Rate and the Founding of the Fed,” American Economic Review, 76 (03 1986), pp. 125–40.Google Scholar
Miron, Jeffrey, and Romer, Christina, “A New Monthly Index of Industrial Production, 1884–1940,” this Journal, 50 (06 1990), pp. 321–38.Google Scholar
Moody's, Manual of Investments, Industrial Securities (New York, various years).Google Scholar
Myers, Margaret, The New York Money Market (New York, 1931), vol. 1.CrossRefGoogle Scholar
Newey, Whitney K., and West, Kenneth D., “A Simple, Positive Definite, Heteroske-dasticity and Autocorrelation Consistent Covariance Matrix,” Econometrica, 55 (05 1987), pp. 703–8.CrossRefGoogle Scholar
New York Stock Exchange, Year Book (New York, various years).Google Scholar
Phillips, Peter C. B., and Perron, Pierre, “Testing for a Unit Root in Time Series Regression,” Biometrika, 75 (1988), pp. 335–46.CrossRefGoogle Scholar
Pierce, Phyllis, ed., The Dow Jones Averages, 1885–1985 (Homewood, IL, 1986).Google Scholar
Rappoport, Peter, and White, Eugene N., “Was There a Bubble in the 1929 Stock Market?” (NBER Working Paper No. 3612, 1990).Google Scholar
Rappoport, Peter, and White, Eugene N., “Was the Crash of 1929 Expected?” (Photocopy, Rutgers University, New Brunswick, NJ, 1992).Google Scholar
Riefler, Winfield W., Money Rates and Money Markets in the United States (New York, 1930).Google Scholar
Santoni, Gary, “The Great Bull Markets, 1924–1929 and 1982–1987: Speculative Bubbles or Economic Fundamentals?Federal Reserve Bank of St. Louis Review, 69 (11 1987), pp. 1629.Google Scholar
Santoni, Gary, and Dwyer, Gerald P. Jr, “Bubbles vs. Fundamentals: New Evidence from the Great Bull Markets,” in White, Eugene N., ed., Crises and Panics: The Lessons of History (Homewood, IL, 1990), pp. 188210.Google Scholar
Smiley, Gene, and Keehn, Richard H., “Margin Purchases, Brokers' Loans and the Bull Market of the Twenties,” Business and Economic History, 17 (1988), pp. 129–42.Google Scholar
Stillman, Richard, Dow Jones Industrial Average: History and Role in an Investment Strategy (Homewood, IL, 1986).Google Scholar
Wanniski, Jude, The Way the World Works (New York, 1978).Google Scholar
White, Eugene N., “Before the Glass-Steagall Act: An Analysis of the Investment Banking Activities of National Banks,” Explorations in Economic History, 23 (01 1986), pp. 3355.CrossRefGoogle Scholar
White, Eugene N., “When the Ticker Ran Late: The Stock Market Boom and Crash of 1929,” in White, Eugene N., ed., Crises and Panics: The Lessons of History (Homewood, IL, 1990), pp. 143–87.Google Scholar
White, Eugene N., “The Stock Market Boom and Crash of 1929 Revisited,” Journal of Economic Perspectives, 4 (Spring 1990), pp. 6783.CrossRefGoogle Scholar
Wigmore, Barrie A., The Crash and its Aftermath (Westport, CT, 1985).Google Scholar
Willis, Parker B., The Federal Funds Market: Its Origins and Development (Boston, 1964).Google Scholar
Wilson, Jack W., Sylla, Richard E., and Jones, Charles P., “Financial Market Panics and Volatility in the Long Run, 1830–1988,” in White, Eugene N., ed., Crashes and Panics: The Lessons of History (Homewood, IL, 1990), pp. 85125.Google Scholar