Was There a Bubble in the 1929 Stock Market?

46 Pages Posted: 27 Apr 2000 Last revised: 16 Nov 2022

See all articles by Peter Rappoport

Peter Rappoport

Newark College of Arts & Sciences - Department of Economics

Eugene N. White

Rutgers University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 1991

Abstract

Standard tests find that no bubbles are present in the stock price data for the last one hundred years. In contrast., historical accounts, focusing on briefer periods, point to the stock market of 1928-1929 as a classic example of a bubble. While previous studies have restricted their attention to the joint behavior of stock prices and dividends over the course of a century, this paper uses the behavior of the premia demanded on loans collateralized by the purchase of stocks to evaluate the claim that the boom and crash of 1929 represented a bubble. We develop a model that permits us to extract an estimate of the path of the bubble and its probability of bursting in any period and demonstrate that the premium behaves as would be expected in the presence of a bubble in stock prices. We also find that our estimate of the bubble's path has explanatory power when added to the standard cointegrating regressions of stock prices and dividends, in spite of the fact that our stock price and dividend series are cointegrated.

Suggested Citation

Rappoport, Peter and White, Eugene Nelson, Was There a Bubble in the 1929 Stock Market? (February 1991). NBER Working Paper No. w3612, Available at SSRN: https://ssrn.com/abstract=227441

Peter Rappoport (Contact Author)

Newark College of Arts & Sciences - Department of Economics

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Eugene Nelson White

Rutgers University - Department of Economics ( email )

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New Brunswick, NJ 08901
United States

National Bureau of Economic Research (NBER)

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United States

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