The Crisis of 1873: Perspectives from Multiple Asset Classes

Abstract

This article analyzes asset pricing behavior during the period leading up to the Crisis of 1873. Evidence is presented that equities, options, and bonds priced risks consistently, suggesting that investors were actively monitoring the risk of investing and were not caught up in an irrational, speculative mania. Implied probability density functions for stock returns suggest that option markets exhibited growing concern about substantial price declines prior to the crash. Concerns were concentrated on riskier, more leveraged firms. Deteriorating balance sheet fundamentals for the riskiest U.S. railroads set the stage for a market disruption in 1873 as information asymmetries worsened.

Banks, Insider Connections, and Industrialization in New England: Evidence from the Panic of 1873

“…Finally, the banking and financial crises of America's financial history are the subject of a large and growing body of work; overviews of this literature are presented in Calomiris and Gorton (2000), Wicker (2000), Bordo and Haubrich (2010) and Hanes and Rhode (2013). The Panic of 1873 itself is the focus of Rezneck (1950), Kindleberger (1990), Bordo (1990) , Mixon (2008) and Benmelech and Bergman (2017). This paper advances the study of the Panic of 1873 by documenting its effects at the firm level among a large number of nonfinancial corporations.…”

For Richer, for Poorer: Bankers' Liability and Risk-taking in New England, 1867-1880

“…, 95th percentile of the distribution of the log-difference in familial assets. 41 We do this separately for bank presidents married before and after the passage of a MWPA. The figure confirms that the effect of protection on leverage is the strongest for bank presidents married to richer wives.…”

“…This led to a nationwide financial crisis, centered in New York. The stock market fell 25% in a week and closed for a period of 10 days(Sprague 1910;Mixon 2008). This initiated a protracted Depression that would last until 1878.In nominal terms, industrial production fell by 34.7% between 1873 and 1878.…”

An Index of the Yields of Junk Bonds, 1910–1955

“…Macaulay's series are still used by economic historians, especially when exploring rates in the second half of the nineteenth century through WWI: for example, Friedman and Schwartz (1982, p. 110), Maurice Obstfeld and Alan M. Taylor (2003), and Scott Mixon (2008). However, all of the bonds that Macaulay used were relatively high quality.…”