Abstract
We study the role that RCA, DuPont, General Motors, and Union Carbide played in the 1927–1933 stock market boom and crash episode. We investigate whether a technological displacement took place and if the cycle was characterized by over-trading. The reasons we reexamine this episode is to contribute to the literature in the following ways: (1) The episode is studied using price and volume, daily data at the company level for the first time. (2) The paper introduces a methodological innovation and in contrast to previous literature, identifies technological displacement with the use of qualitative criteria rather than quantitative metrics. We display that the crash of 1929 originated in speculative activity revolving around a few companies that were the most innovative of the time, namely: RCA, DuPont, General Motors, and Union Carbide, and later extended to the rest of the stock market. These companies led the boom that preceded the crash, reinforcing the idea that radical technological innovations responsible for enhancing long-term prosperity can be the same ones that produce large financial cycles.
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This manuscript contains data that will be made available to the reviewers if needed.
Notes
For example, on the 4th of August 1925, a New York Times article titled “$500 million Expected for Radio.” reported that” the retail value of radio-receiving sets to be sold in 1925 is estimated at $500 million, compared with a value of $50 million for sets sold in 1922…In 1922 there were hardly 100,000 radio sets in use…and by the close of this year it is expected that 5 million sets will be in use…Those figures illustrate the remarkable expansion of the radio industry in the last 3 years”.
RCA started to broadcast television daily in New York City from 7 to 9 pm on an experimental basis in March 1929, as the New York Times article of March 22, 1929 “Television placed on daily schedule. RCA now broadcasting images regularly from 7 pm to 9 o’clock from 411 Fifth Avenue” documents.
Our data can be found here: http://wrds-web.wharton.upenn.edu/wrds/
Du Pont (1925) https://www.dupont.com/about/our-history.html
However, the direction of causality runs from the price of RCA to the price of GE, strengthening our case that ownership is not the underlying reason for the widespread price increases that follow the technical disruptions.
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We thank the Lake Forest College student, Adriana Jovsic, for her helpful comments and assistance.
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Papadovasilaki, D., Guerrero, F., Wuthisatian, R. et al. The 1920s technological revolution and the crash of 1929: the role of RCA, DuPont, General Motors, and Union Carbide. SN Bus Econ 2, 36 (2022). https://doi.org/10.1007/s43546-022-00208-3
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DOI: https://doi.org/10.1007/s43546-022-00208-3