The Stock Market Crash of 1929: Irving Fisher Was Right!
AbstractIn the fall of 1929, the market value of all shares listed on the New York Stock Exchange fell by 30 percent. Many analysts then and now take the view that stocks were then overvalued and the stock market was in need of a correction. Irving Fisher argued that the fundamentals were strong and the stock market was undervalued. In this paper, we estimate the fundamental value of corporate equity in 1929 using data on stocks of productive capital and tax rates as in McGrattan and Prescott (2000, 2001) and compare it to actual stock valuations. We find that the stock market in 1929 did not crash because the market was overvalued. In fact, the evidence strongly suggests that stocks were undervalued, even at their 1929 peak.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8622.
Date of creation: Dec 2001
Date of revision:
Publication status: published as McGrattan, Ellen R. and E. Prescott. “The 1929 Stock Market: Irving Fisher Was Right." International Economic Review 45 (2004): 991–1009.
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Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-12-04 (All new papers)
- NEP-DGE-2001-12-04 (Dynamic General Equilibrium)
- NEP-FMK-2001-12-04 (Financial Markets)
- NEP-LAM-2001-12-04 (Central & South America)
- NEP-PKE-2001-12-04 (Post Keynesian Economics)
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