Work

The 1929 Stock Market: Irving Fisher Was Right*

Year: 2004

Type: article

Abstract: Many stock market analysts think that in 1929, at the time of the crash, stocks were overvalued.Irving Fisher argued just before the crash that fundamentals were strong and the stock market was undervalued.In this paper, we use growth theory to estimate the fundamental value of corporate equity and compare it to actual stock valuations.Our estimate is based on values of productive corporate capital, both tangible and intangible, and tax rates on corporate income and distributions.The evidence strongly suggests that Fisher was right.Even at the 1929 peak, stocks were undervalued relative to the prediction of theory.

Source: International Economic Review

DOI: 10.1111/j.0020-6598.2004.00295.x

Authors: Ellen R. McGrattan, Edward C. Prescott

Institutions: University of Minnesota, National Bureau of Economic Research, Federal Reserve Bank of Minneapolis, Arizona State University

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funders: National Science Foundation, University of Michigan, Banco de Portugal

OpenAlex ID: W1978262778

FWCI: 5.775

Cites: 21

Cited by: 101

Related to: 10