TY - JOUR AU - Davis,Lance E. AU - Neal,Larry AU - White,Eugene N. TI - The Highest Price Ever: The Great NYSE Seat Sale of 1928-1929 and Capacity Constraints JF - National Bureau of Economic Research Working Paper Series VL - No. 11556 PY - 2005 Y2 - August 2005 DO - 10.3386/w11556 UR - http://www.nber.org/papers/w11556 L1 - http://www.nber.org/papers/w11556.pdf N1 - Author contact info: Lance E. Davis E-Mail: N/A user is deceased Larry D. Neal 3070 Lane Woods Court Columbus, OH 43221 E-Mail: lneal@illinois.edu Eugene N. White Department of Economics Rutgers University 75 Hamilton Street New Brunswick, NJ 08901-1248 Tel: 732-932-7363 Fax: 732/932-7416 E-Mail: white@economics.rutgers.edu AB - A surge in orders during the stock market boom of the late 1920s collided against the constraint created by the fixed number of brokers on the New York Stock Exchange. Estimates of the determinants of individual stock bid-ask spreads from panel data reveal that spreads jumped when volume spiked, confirming contemporary observers complaints that there were insufficient counterparties. When the position of the NYSE as the dominant exchange became threatened, the management of the exchange proposed a 25 percent increase in the number of seats in February 1929 by issuing a quarter-seat dividend to all members. While such a "stock split" would be expected to leave the aggregate value of the NYSE unchanged, an event study reveals that its value rose in anticipation of increased efficiency. These expectations were justified as bid-ask spreads became less sensitive to peak volume days after the increase in seats. ER -