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The 1929 crash of the New York stock exchange as a liquidity crisis

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  • Jean‐Laurent Cadorel

Abstract

What caused the 1929 crash of the New York Stock Exchange? This paper quantitatively studies liquidity during the 1929 crash of the NYSE. I evidence that the crash represented a liquidity crisis due to the liquidation of brokers’ margin loans. Applying recent estimators of effective spreads and liquidity conditions from contemporary finance literature suggests a four‐fold increase in spreads during the crash at the aggregate level. At the individual stock level, quoted bid‐ask spreads suggest that liquidity explains one‐fifth of the variance in daily stock returns during the crash.

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  • Jean‐Laurent Cadorel, 2024. "The 1929 crash of the New York stock exchange as a liquidity crisis," Economic History Review, Economic History Society, vol. 77(4), pages 1197-1221, November.
    • Handle: RePEc:bla:ehsrev:v:77:y:2024:i:4:p:1197-1221
    DOI: 10.1111/ehr.13309
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