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The Highest Price Ever: The Great NYSE Seat Sale of 1928 1929 and Capacity Constraints

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  • Davis, Lance E.
  • Neal, Larry
  • White, Eugene

Abstract

During the 1920s the New York Stock Exchange s position as the dominant American exchange was eroding. Costs to customers, measured as bid-ask spreads, spiked when surging inflows of orders collided with the constraint created by a fixed number of brokers. The NYSE s management proposed and the membership approved a 25 percent increase in the number of seats by issuing a quarter-seat dividend to all members. An event study reveals that the aggregate value of the NYSE rose in anticipation of improved competitiveness. These expectations were justified as bid-ask spreads became less sensitive to peak volume days.

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Bibliographic Info

Article provided by Cambridge University Press in its journal The Journal of Economic History.

Volume (Year): 67 (2007)
Issue (Month): 03 (September)
Pages: 705-739

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Handle: RePEc:cup:jechis:v:67:y:2007:i:03:p:705-739_00

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  1. Donald B. Keim & Ananth Madhavan, . "The Information Contained in Stock Exchange Seat Prices," Rodney L. White Center for Financial Research Working Papers 07-98, Wharton School Rodney L. White Center for Financial Research.
  2. Donald B. Keim & Ananth Madhavan, 2000. "The Relation between Stock Market Movements and NYSE Seat Prices," Journal of Finance, American Finance Association, vol. 55(6), pages 2817-2840, December.
  3. Menyah, Kojo & Paudyal, Krishna, 1996. "The Determinants and Dynamics of Bid-Ask Spreads on the London Stock Exchange," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 19(3), pages 377-94, Fall.
  4. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Schwert, G. William, 1977. "Stock exchange seats as capital assets," Journal of Financial Economics, Elsevier, vol. 4(1), pages 51-78, January.
  6. Hans R. Stoll, . "The Supply of Dealer Services in Securities Markets," Rodney L. White Center for Financial Research Working Papers 2-78, Wharton School Rodney L. White Center for Financial Research.
  7. G. William Schwert, 1977. "Public Regulation of National Securities Exchanges: A Test of the Capture Hypothesis," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 128-150, Spring.
  8. Golbe, Devra L., 1986. "Has deregulation decreased the risk of NYSE seat ownership?," Economics Letters, Elsevier, vol. 20(3), pages 283-289.
  9. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
  10. Easley, David & O'Hara, Maureen, 1987. "Price, trade size, and information in securities markets," Journal of Financial Economics, Elsevier, vol. 19(1), pages 69-90, September.
  11. Jarrell, Gregg A, 1984. "Change at the Exchange: The Causes and Effects of Deregulation," Journal of Law and Economics, University of Chicago Press, vol. 27(2), pages 273-312, October.
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Cited by:
  1. Neal, Larry & White, Eugene N., 2012. "The Glass–Steagall Act in historical perspective," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 104-113.
  2. Eugene N. White, 2013. "Competition Among the Exchanges before the SEC: Was the NYSE a Natural Hegemon?," NBER Working Papers 18712, National Bureau of Economic Research, Inc.
  3. Moser, Petra, 2012. "Taste-based discrimination evidence from a shift in ethnic preferences after WWI," Explorations in Economic History, Elsevier, vol. 49(2), pages 167-188.

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