The US Bond Market before 1926: Investor Total Return from 1793, Comparing Federal, Municipal and Corporate Bonds Part II: 1857 to 1926

136 Pages Posted: 18 Sep 2019 Last revised: 19 Mar 2021

See all articles by Edward F. McQuarrie

Edward F. McQuarrie

Santa Clara University - Leavey School of Business

Date Written: March 19, 2021

Abstract

From 1857 scholars have relied on Macaulay (1938) to track changes in interest rates during the period before the Ibbotson data begin. Holding period returns, where of interest (e.g., Siegel 1992a, 1992b), have been calculated from summary yield inputs such as those tabulated by Homer (1963), rather than observed prices of individual bonds. Here in Part II of the paper I explain how Homer got Macaulay wrong, misleading downstream compilers such as Siegel, and causing him to under-estimate 19th century bond returns. Values in Homer taken from Macaulay are not yields, but mathematical constructions erected on a (distant) foundation of observations. I correct Siegel’s under-estimate by retrieving bond prices from Macaulay’s sources and calculating holding period returns directly. I also correct a more general failure to treat Federal bonds properly during the greenback era. In the aggregate I find real bond returns in the second half of the 19th century to be about 150 basis points higher than Siegel. With this correction, in conjunction with corrected stock returns before 1871, I find that bond returns matched stock returns over the entire 19th century. The “stocks for the long run” thesis now appears to be a mistaken extrapolation from a few decades in the middle of the 20th century. No support for it can be found in the 19th century. [Some results in this paper have been updated in subsequent work; see revision notes following this Abstract.]

Keywords: historical bond returns, 19th century US markets, greenback era, corporate bonds, municipal bonds, National Banking Acts

JEL Classification: E31, E44, G12, N11, N21

Suggested Citation

McQuarrie, Edward F., The US Bond Market before 1926: Investor Total Return from 1793, Comparing Federal, Municipal and Corporate Bonds Part II: 1857 to 1926 (March 19, 2021). Available at SSRN: https://ssrn.com/abstract=3269683 or http://dx.doi.org/10.2139/ssrn.3269683

Edward F. McQuarrie (Contact Author)

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,296
Abstract Views
5,479
rank
18,891
PlumX Metrics