NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Stock Market Crash of 1929: Irving Fisher Was Right!

Ellen R. McGrattan, Edward C. Prescott

NBER Working Paper No. 8622
Issued in December 2001
NBER Program(s):   AP   EFG

In the fall of 1929, the market value of all shares listed on the New York Stock Exchange fell by 30 percent. Many analysts then and now take the view that stocks were then overvalued and the stock market was in need of a correction. Irving Fisher argued that the fundamentals were strong and the stock market was undervalued. In this paper, we estimate the fundamental value of corporate equity in 1929 using data on stocks of productive capital and tax rates as in McGrattan and Prescott (2000, 2001) and compare it to actual stock valuations. We find that the stock market in 1929 did not crash because the market was overvalued. In fact, the evidence strongly suggests that stocks were undervalued, even at their 1929 peak.

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Document Object Identifier (DOI): 10.3386/w8622

Published: McGrattan, Ellen R. and E. Prescott. “The 1929 Stock Market: Irving Fisher Was Right." International Economic Review 45 (2004): 991–1009.

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