In Search of Stock Market Bubbles: A Comment on Rappoport and White
| Autor: | Courtenay C. Stone, Tung Liu, Gray J. Santoni |
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| Rok vydání: | 1995 |
| Předmět: | |
| Zdroj: | The Journal of Economic History. 55:647-654 |
| ISSN: | 1471-6372 0022-0507 |
| DOI: | 10.1017/s002205070004167x |
| Popis: | In a recent article in this JOURNAL, Peter Rappoport and Eugene N. White (hereafter R-W) conclude that, "while there is still room for skepticism [of the presence of a bubble in the boom and bust stock market of 1928/29], the traditional accounts of a bubble in the market cannot be so easily dismissed."1 Their conclusion is not based on econometric evidence for a stock market bubble per se. Instead, it is based solely on their interpretation of the widening spread between the interest rates on brokers' loans (call and time loans collateralized by stocks and bonds) and other money market interest rates in 1928 and 1929. After speculating that this interest rate gap was formed when "lenders . . . thought stock prices might collapse during the term of a loan and jeopardize the collateral," they allege that the "high premia in the brokers' loan market therefore contain information about lenders' perceptions of a bubble in the stock market.'2 Based on their conjecture, R-W use interest rates on time stock loans and bankers' acceptances, in conjunction with a model of the brokers' loan market, to estimate the bubble component in stock prices.3 This comment challenges R-W's interpretation of the interest rate premia on brokers' loans during 1928/29 on three grounds. First, we show that a similar episode occurred in late 1919 and 1920, when stock prices were generally declining, quite unlike their performance during 1928/29. Second, econometric tests provide no evidence of parameter instability or structural breaks in the spread between rates on brokers' time loans and bankers' acceptances during the 1928/29 period. Finally, contrary to R-W's conjecture about bankers' perceptions of a bubble in stock prices, the relationship between the call and time brokers' loan rates during 1928/29 is inconsistent with the bubble explanation, and the interest rate premia themselves evaporated several weeks prior to the 29 October 1929 stock market collapse. Consequently, the spread between brokers' loan rates and other money market rates cannot be used to confirm the possible existence of a stock market bubble during 1928/29. |
| Databáze: | OpenAIRE |
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