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The Crisis of 1873: Perspectives from Multiple Asset Classes

Published online by Cambridge University Press:  01 September 2008

SCOTT MIXON
SCOTT MIXON*
Affiliation:
Director of Alternative Investments Strategy, Société Générale Corporate & Investment Banking, 1221 Avenue of the Americas, New York, NY 10020. E-mail: [email protected].
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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.

Type
ARTICLES
Information
The Journal of Economic History , Volume 68 , Issue 3 , September 2008 , pp. 722 - 757
Copyright
Copyright © The Economic History Association 2008

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