Towards a History of the Junk Bond Market, 1910-1955

48 Pages Posted: 21 Sep 2015

See all articles by Peter Basile

Peter Basile

Rutgers, The State University of New Jersey - Department of Economics

Sung Won Kang

Korean Economic Research Institute

John Landon-Lane

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics

Hugh Rockoff

Newark College of Arts & Sciences - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 2015

Abstract

We present a new monthly index of the yield on junk (high yield) bonds from 1910-1955. We then use the index to reexamine some of the main debates about the financial history of the interwar years. A close look at junk bond yields: (1) strengthens the view that the decline in lending standards in the late 1920s was modest at best: (2) casts doubt on the view that the banking crisis that began in 1930 disrupted financial markets because banks liquidated their holdings of risky bonds; (3) strengthens the view that the cost of capital rose substantially in the early 1930s and remained high for the rest of the decade; (4) casts doubt on the view that financial markets entered a liquidity trap in the second half of the 1930s; and (5) strengthens the case for believing that junk bond yields contain some information useful for making economic forecasts.

Suggested Citation

Basile, Peter and Kang, Sung Won and Landon-Lane, John and Rockoff, Hugh T., Towards a History of the Junk Bond Market, 1910-1955 (September 2015). NBER Working Paper No. w21559, Available at SSRN: https://ssrn.com/abstract=2663197

Peter Basile (Contact Author)

Rutgers, The State University of New Jersey - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

Sung Won Kang

Korean Economic Research Institute ( email )

John Landon-Lane

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

Hugh T. Rockoff

Newark College of Arts & Sciences - Department of Economics ( email )

360 ML King Jr. Blvd.
Newark, NJ 07102
United States
732-932-7857 (Phone)
732-932-7416 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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