The 1929 Crash of the New York Stock Exchange as a Liquidity Crisis

Le Krach de 1929 du New York Stock Exchange comme crise de liquidité

Jean-Laurent Cadorel

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Abstract: What caused the 1929 crash of the New York Stock Exchange? This paper provides a quantitative study of liquidity in the 1929 crash of the NYSE. I evidence the crash was indeed a liquidity crisis due to the liquidation of brokers' margin loans. Applying recent estimators of effective spreads and liquidity conditions from contemporary finance literature suggests a fourfold increase in spreads during the crash at the aggregate level. At the individual stock level, quoted bid-ask spreads suggest liquidity explains one-fifth of the variance in daily stock returns in the crash.

Keywords: 1929 crash; Stock market; NYSE; Financial crisis; Liquidity crisis; Krach 1929; Marchés financiers; Crise financière; Crise de liquidité (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-his
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Published in The Economic History Review, In press, ⟨10.1111/ehr.13309⟩

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Working Paper: The 1929 Crash of the New York Stock Exchange as a Liquidity Crisis (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04347097

DOI: 10.1111/ehr.13309

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