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

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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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11556.

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Date of creation: Aug 2005
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Publication status: published as Davis, Lance E. & Neal, Larry & White, Eugene, 2007. "The Highest Price Ever: The Great NYSE Seat Sale of 1928 1929 and Capacity Constraints," The Journal of Economic History, Cambridge University Press, vol. 67(03), pages 705-739, September.
Handle: RePEc:nbr:nberwo:11556

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  1. Hans R. Stoll, . "The Supply of Dealer Services in Securities Markets," Rodney L. White Center for Financial Research Working Papers 02-78, 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. 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.
  5. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
  6. Schwert, G. William, 1977. "Stock exchange seats as capital assets," Journal of Financial Economics, Elsevier, vol. 4(1), pages 51-78, January.
  7. 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.
  8. Golbe, Devra L., 1986. "Has deregulation decreased the risk of NYSE seat ownership?," Economics Letters, Elsevier, vol. 20(3), pages 283-289.
  9. 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.
  10. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  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. 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.
  2. White, Eugene N., 2013. "Competition among the exchanges before the SEC: was the NYSE a natural hegemon?," Financial History Review, Cambridge University Press, vol. 20(01), pages 29-48, April.
  3. 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.

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