The Highest Price Ever: The Great NYSE Seat Sale of 1928-1929 and Capacity Constraints

46 Pages Posted: 2 Aug 2010 Last revised: 31 Jul 2021

See all articles by Lance E. Davis

Lance E. Davis

California Institute of Technology - Division of the Humanities and Social Sciences; National Bureau of Economic Research (NBER)

Larry D. Neal

University of Illinois at Urbana-Champaign - Department of Economics; National Bureau of Economic Research (NBER)

Eugene N. White

Rutgers, The State University of New Jersey

Date Written: August 2005

Abstract

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.

Suggested Citation

Davis, Lance E. and Neal, Larry D. and White, Eugene N., The Highest Price Ever: The Great NYSE Seat Sale of 1928-1929 and Capacity Constraints (August 2005). NBER Working Paper No. w11556, Available at SSRN: https://ssrn.com/abstract=1651410

Lance E. Davis (Contact Author)

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

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Pasadena, CA 91125
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Larry D. Neal

University of Illinois at Urbana-Champaign - Department of Economics ( email )

1407 W. Gregory Drive
Urbana, IL 61801
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Eugene N. White

Rutgers, The State University of New Jersey ( email )

311 North 5th Street
New Brunswick, NJ 08854
United States

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