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Towards a History of the Junk Bond Market, 1910-1955

Listed author(s):
  • Peter F. Basile

    (Department of Economics Rutgers University and AT&T)

  • Sung Won Kang

    (Korean Economic Research Institute)

  • John Landon-Lane

    (Department of Economics Rutgers University)

  • Hugh Rockoff

    ()

    (Department of Economics Rutgers University and NBER)

Registered author(s):

    We present a new monthly index of the yield on junk (high yield) bonds from 1910-1955. We then use the index to reexamine some of the main debates about the financial history of the interwar years. A close look at junk bond yields: (1) strengthens the view that the decline in lending standards in the late 1920s was modest at best: (2) casts doubt on the view that the banking crisis that began in 1930 disrupted financial markets because banks liquidated their holdings of risky bonds; (3) strengthens the view that the cost of capital rose substantially in the early 1930s and remained high for the rest of the decade; (4) casts doubt on the view that financial markets entered a liquidity trap in the second half of the 1930s; and (5) strengthens the case for believing that junk bond yields contain some information useful for making economic forecasts.

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    File URL: http://www.sas.rutgers.edu/virtual/snde/wp/2015-14.pdf
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    Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 201514.

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    Length: 48 pages
    Date of creation: 14 Oct 2015
    Handle: RePEc:rut:rutres:201514
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    1. Rappoport, Peter & White, Eugene N, 1994. "Was the Crash of 1929 Expected?," American Economic Review, American Economic Association, vol. 84(1), pages 271-281, March.
    2. Wicker,Elmus, 1996. "The Banking Panics of the Great Depression," Cambridge Books, Cambridge University Press, number 9780521562614, September.
    3. Geoffrey H. Moore, 1956. "The Quality Of Credit In Booms And Depressions," Journal of Finance, American Finance Association, vol. 11(2), pages 288-300, 05.
    4. Garlock, Fred L., 1941. "Country Banking in Wisconsin During the Depression," Technical Bulletins 169025, United States Department of Agriculture, Economic Research Service.
    5. Frederick R. Macaulay, 1938. "Some Theoretical Problems Suggested by the Movements of Interest Rates, Bond Yields and Stock Prices in the United States since 1856," NBER Books, National Bureau of Economic Research, Inc, number maca38-1, 01.
    6. Ashoka Mody & Mark P. Taylor, 2003. "The High-Yield Spread as a Predictor of Real Economic Activity: Evidence of a Financial Accelerator for the United States," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 1-3.
    7. W. Braddock Hickman, 1958. "Corporate Bond Quality and Investor Experience," NBER Books, National Bureau of Economic Research, Inc, number hick58-1, 01.
    8. Hanes, Christopher, 2006. "The Liquidity Trap and U.S. Interest Rates in the 1930s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 163-194, February.
    9. Hunter, Helen Manning, 1982. "The Role of Business Liquidity During the Great Depression and Afterwards: Differences Between Large and Small Firms," The Journal of Economic History, Cambridge University Press, vol. 42(04), pages 883-902, December.
    10. Gertler, Mark & Lown, Cara S, 1999. "The Information in the High-Yield Bond Spread for the Business Cycle: Evidence and Some Implications," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 132-150, Autumn.
    11. W. Braddock Hickman, 1958. "Introduction and Summary of Findings to "Corporate Bond Quality and Investor Experience"," NBER Chapters,in: Corporate Bond Quality and Investor Experience, pages 3-27 National Bureau of Economic Research, Inc.
    12. Peter F. Basile & John Landon-Lane & Hugh Rockoff, 2010. "Money and Interest Rates in the United States during the Great Depression," NBER Working Papers 16204, National Bureau of Economic Research, Inc.
    13. Smiley, Gene, 1981. "Regional Variation in Bank Loan Rates in the Interwar Years," The Journal of Economic History, Cambridge University Press, vol. 41(04), pages 889-901, December.
    14. Karl Brunner & Allan H. Meltzer, 1968. "Liquidity Traps for Money, Bank Credit, and Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 76, pages 1-1.
    15. W. Braddock Hickman, 1958. "Index to "Corporate Bond Quality and Investor Experience"," NBER Chapters,in: Corporate Bond Quality and Investor Experience, pages 531-536 National Bureau of Economic Research, Inc.
    16. Charles W. Calomiris, 1993. "Financial Factors in the Great Depression," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 61-85, Spring.
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