IDEAS home Printed from https://ideas.repec.org/a/spr/jecfin/v42y2018i4d10.1007_s12197-017-9418-6.html
   My bibliography  Save this article

Electrification, the Smoot-Hawley tariff bill and the stock market boom and crash of 1929: evidence from longitudinal data

Author

Listed:
  • Bernard C. Beaudreau

    (Department of Economics Université Laval)

Abstract

Electrification and the introduction of high-throughput, continuous-flow production tech- niques in the 1920s vastly increased America’s capacity to produce wealth. Getting in the way, according to many, were weak product markets, prompting ranking Republicans Reed Smoot and Ellis Hawley, in the Party’s 1928 presidential platform, to advocate yet another generalized upward tariff revision—the Smoot-Hawley Tariff Bill (SHTB). The stock market responded favorably, as prices increased throughout 1928 and most of 1929. They crashed, however, in October 1929 when it became evident that the proposed Smoot-Hawley Tariff Bill which called for across-the-board tariff would be defeated by an Insurgent-Republican Democrat coalition and replaced with substantially lower tariffs on manufactures. Using longitudinal analysis, this paper shows how stock prices of firms in industries most affected by electrification tracked these developments, rising in response to good tariff news, and falling in response to bad tariff news. Operationally, a tariff news proxy variable is developed and included in the three-factor Fama-French model of stock prices. Our hypothesis is then tested using daily stock returns for a subsample of nineteen DJIA firms. The results show a positive and significant effect of tariff news on all nineteen stock prices. Lastly, we show that good tariff news explains up to 76% of stock price appreciation in the 1928–1929 period of firms in industries most affected by electrification. These results suggest that the stock market boom and crash of 1929 can be understood in terms of political developments set against a background of improved fundamentals.

Suggested Citation

  • Bernard C. Beaudreau, 2018. "Electrification, the Smoot-Hawley tariff bill and the stock market boom and crash of 1929: evidence from longitudinal data," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(4), pages 631-650, October.
    • Handle: RePEc:spr:jecfin:v:42:y:2018:i:4:d:10.1007_s12197-017-9418-6
    DOI: 10.1007/s12197-017-9418-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s12197-017-9418-6
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s12197-017-9418-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. De Long, J. Bradford & Shleifer, Andrei, 1991. "The stock market bubble of 1929: evidence from clsoed-end mutual funds," The Journal of Economic History, Cambridge University Press, vol. 51(3), pages 675-700, September.
    2. 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.
    3. Robert J. Gordon, 2004. "Five Puzzles in the Behavior of Productivity, Investment, and Innovation," NBER Working Papers 10660, National Bureau of Economic Research, Inc.
    4. Rappoport, Peter & White, Eugene N., 1993. "Was There a Bubble in the 1929 Stock Market?," The Journal of Economic History, Cambridge University Press, vol. 53(3), pages 549-574, September.
    5. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    6. John J. Binder, 1985. "Measuring the Effects of Regulation with Stock Price Data," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 167-183, Summer.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ang, James & Wang, Jingfang, 2023. "The trade war's impact on the financial market: Observations from the historical global trade war - the Smoot Hawley Tariff Act," Global Finance Journal, Elsevier, vol. 55(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Robert F. Bruner & Scott C. Miller, 2019. "The Great Crash of 1929: A Look Back After 90 Years," Journal of Applied Corporate Finance, Morgan Stanley, vol. 31(4), pages 43-58, December.
    2. Eugene N. White, 2004. "Bubbles and Busts: The 1990s in the Mirror of the 1920s," FRU Working Papers 2004/09, University of Copenhagen. Department of Economics. Finance Research Unit.
    3. Ali Kabiri & Harold James & John Landon-Lane & David Tuckett & Rickard Nyman, 2020. "The Role of Sentiment in the Economy: 1920 to 1934," CESifo Working Paper Series 8336, CESifo.
    4. Anderson, Keith & Brooks, Chris & Katsaris, Apostolos, 2010. "Speculative bubbles in the S&P 500: Was the tech bubble confined to the tech sector?," Journal of Empirical Finance, Elsevier, vol. 17(3), pages 345-361, June.
    5. Ali Kabiri & Harold James & John Landon‐Lane & David Tuckett & Rickard Nyman, 2023. "The role of sentiment in the US economy: 1920 to 1934," Economic History Review, Economic History Society, vol. 76(1), pages 3-30, February.
    6. Dimitra Papadovasilaki & Federico Guerrero & Rattaphon Wuthisatian & Bhraman Gulati, 2022. "The 1920s technological revolution and the crash of 1929: the role of RCA, DuPont, General Motors, and Union Carbide," SN Business & Economics, Springer, vol. 2(5), pages 1-22, May.
    7. White, Eugene N., 1996. "The past and future of economic history in economics," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(Supplemen), pages 61-72.
    8. John H. Huston & Roger W. Spencer, 2009. "Speculative excess and the Federal Reserve's response," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 26(1), pages 46-61, March.
    9. Escobari, Diego & Garcia, Sergio & Mellado, Cristhian, 2017. "Identifying bubbles in Latin American equity markets: Phillips-Perron-based tests and linkages," Emerging Markets Review, Elsevier, vol. 33(C), pages 90-101.
    10. Angelos Kanas & Yue Ma, 2004. "Intrinsic bubbles revisited: evidence from nonlinear cointegration and forecasting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(4), pages 237-250.
    11. John Simon, 2003. "Three Australian Asset-price Bubbles," RBA Annual Conference Volume (Discontinued), in: Anthony Richards & Tim Robinson (ed.),Asset Prices and Monetary Policy, Reserve Bank of Australia.
    12. Caetano, Marco Antonio Leonel & Yoneyama, Takashi, 2009. "A new indicator of imminent occurrence of drawdown in the stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(17), pages 3563-3571.
    13. Nicholas Crafts & Peter Fearon, 2010. "Lessons from the 1930s Great Depression," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 26(3), pages 285-317, Autumn.
    14. Loann David Denis Desboulets, 2017. "Co-movements in Market Prices and Fundamentals: A Semiparametric Multivariate GARCH Approach," Working Papers halshs-02059302, HAL.
    15. Charles W. Calomiris, 1993. "Financial Factors in the Great Depression," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 61-85, Spring.
    16. Caetano, Marco Antonio Leonel & Yoneyama, Takashi, 2012. "A method for detection of abrupt changes in the financial market combining wavelet decomposition and correlation graphs," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(20), pages 4877-4882.
    17. Ozan Hatipoglu & Onur Uyar, 2012. "Do Bubbles Spill Over? Estimating Financial Bubbles in Emerging Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(S5), pages 64-75, November.
    18. Saumitra N. Bhaduri, 2014. "Applying Approximate Entropy (ApEn) to Speculative Bubble in the Stock Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 13(1), pages 43-68, April.
    19. Jean-Laurent Cadorel, 2024. "The 1929 Crash of the New York Stock Exchange as a Liquidity Crisis [Le Krach de 1929 du New York Stock Exchange comme crise de liquidité]," Post-Print hal-04347097, HAL.
    20. John R. Conlon, 2015. "Should Central Banks Burst Bubbles? Some Microeconomic Issues," Economic Journal, Royal Economic Society, vol. 125(582), pages 141-161, February.

    More about this item

    Keywords

    Smoot-Hawley tariff act; Electrification; Stock market boom and crash of 1929;
    All these keywords.

    JEL classification:

    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • N42 - Economic History - - Government, War, Law, International Relations, and Regulation - - - U.S.; Canada: 1913-
    • N62 - Economic History - - Manufacturing and Construction - - - U.S.; Canada: 1913-

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jecfin:v:42:y:2018:i:4:d:10.1007_s12197-017-9418-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.