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   Research Updates

January 2018

I have joined the Editorial Board of Explorations in Economic History

December 2017

Gustavo Cortes and I have started writing some papers on equity markets during the Great Depression. Our manuscript, "Stock Volatility and the Great Depression," breaks new ground in the study of the "stock volatility puzzle of the Great Depression" identified by Officer (1973), Schwert (1989), and Wilson, Sylla, and Jones (1990). Stock volatility during the Great Depression was two to three times higher than any other period in American history. A convincing explanation for the high level and persistence of stock volatility has eluded scholars for nearly 30 years. We find that a simple two variable model of financial leverage and the volatility of building permit growth can largely explain the behavior of stock volatility during the Great Depression. The manuscript was featured on the home page of the NBER (Research Spotlight section). The paper can be downloaded from the NBER website: http://www.nber.org/papers/w23554.

My paper co-authored with Asaf Bernstein and Eric Hughson, "Counterparty Risk and the Establishment of the NYSE Clearinghouse," has been accepted for publication by the Journal of Political Economy. The manuscript examines the impact of net clearing on counterparty risk using an historical experiment. The Consolidated Stock Exchange established a clearinghouse in the 1880s and was a competitor to the NYSE. The rival exchange, located across the street from the Big Board, traded the most liquid securities on the NYSE. In 1892, the NYSE established a clearinghouse that introduced net settlement on the exchange. Using the Consolidated Stock Exchange as a control, we are able to estimate the impact of changing from a system of gross to net settlement on asset prices. We find that the introduction of net settlement increased asset prices and lowered volatility. The paper can be downloaded from the NBER website: http://www.nber.org/papers/w20459

My paper co-authored with Joseph Davis, "America's First Great Moderation," identifies an earlier period of positive economic growth and low economic volatility during the 1840s and 1850s using Davis (2004) industrial production index. The period lasted 16 years and  is the longest expansion in American economic history. The First (1841-1856) and Second Great Moderations (1984-2007)  generate similar growth-to-volatility ratios using standard Markov regime switching models. America's First Great Moderation, unlike the more recent Great Moderation, occurred despite the absence of a central bank and significant economic policymaking. The paper appeared in the December 2017 issue of the Journal of Economic History. The manuscript can be downloaded from the NBER website: http://www.nber.org/papers/w21856.