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

Author

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

Abstract

A surge in orders during the stock market boom of the late 1920s collided against the constraint created by the fixed number of brokers on the New York Stock Exchange. Estimates of the determinants of individual stock bid-ask spreads from panel data reveal that spreads jumped when volume spiked, confirming contemporary observers complaints that there were insufficient counterparties. When the position of the NYSE as the dominant exchange became threatened, the management of the exchange proposed a 25 percent increase in the number of seats in February 1929 by issuing a quarter-seat dividend to all members. While such a "stock split" would be expected to leave the aggregate value of the NYSE unchanged, an event study reveals that its value rose in anticipation of increased efficiency. These expectations were justified as bid-ask spreads became less sensitive to peak volume days after the increase in seats.

Suggested Citation

  • Lance E. Davis & Larry Neal & Eugene N. White, 2005. "The Highest Price Ever: The Great NYSE Seat Sale of 1928-1929 and Capacity Constraints," NBER Working Papers 11556, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:11556
    Note: DAE
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    File URL: http://www.nber.org/papers/w11556.pdf
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    References listed on IDEAS

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    Cited by:

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    3. Jose A. Scheinkman, 2013. "Speculation, Trading and Bubbles Third Annual Arrow Lecture," Working Papers 1458, Princeton University, Department of Economics, Econometric Research Program..

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    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions
    • G2 - Financial Economics - - Financial Institutions and Services

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