An Applied Time Series Study of The Stock Market Boom & Crash of 1929

Abstract

This endeavor is an effort to study the price dynamics of 26 publicly traded companies in the New York Stock Exchange (NYSE) during the years 1926-1933 using data (monthly and daily) from the Wharton Research Data Service (WRDS) database. We find evidence against the hypothesis of random walks in stock prices. There was a bubble during the years 1927-29, which began in the fall of 1927. Companies introducing new technologies, such as Radio Corporation of America (RCA), had their price peak first, and led the boom. Companies in traditional sectors had their peaks last, and were followers. In addition, there is significant price undershooting in the aftermath of the crash, in contrast to the typical experimental bubbles. Our results not only reinforce Kindleberger-Minsky hypothesis, but also highlight potential for further research in the realm of financial economic research and policy.