The proposed project explores the wide-ranging and essentially unregulated transformation of the New York Stock Exchange into one of the world's premier securities markets from the 1880s through the 1920s, a period of major economic changes, marked by a protracted battle against the arch rival Consolidated Exchange and punctuated by several sharp financial crises. The proposed study investigates several hypotheses in three areas: 1. long-term patterns of microstructure and performance; 2. response to crises and other shocks; and 3. competitive pressures and anti-competitive behavior. The research studies these phenomena, at both the aggregate and security levels, using several measures of market liquidity, transactions costs (and their information and order-processing components), market power, and inter-market price differentials. Tangible outputs include several published articles as well as the first comprehensive database of daily information for all stocks traded on the NYSE and the Consolidated during the period.
(1) Intellectual merit of the proposed activity The proposed work contributes to a relatively new line of research on the 19th and early 20th century development of securities markets as they took on major roles in financing corporate equity during an era of comparatively rudimentary communications technology, narrow markets, thin trading, and before investor protection laws aimed at ensuring information transparency and limiting insider trading. Over the past several years, the PI has made significant strides in laying out the research agenda, formulating testable hypotheses, identifying sources, and gathering large quantities of data. This groundwork, in addition to the PI's prior experience in closely related fields and collaboration with an expert in microstructure, ensures quick and efficient use of funds. The PI and co-author have produced promising results using the first wave of data. The proposed activity expands substantially on this work, and requires much more data than the PI has so far assembled, to accurately identify trends and fluctuations in continuous time, pinpoint effects of specific institutional changes, study several events taking place in years not yet in the database (e.g. financial crises), and evaluate effects of competition with the Consolidated. The proposed data collection is essential to the research plan and also allows comparative analysis with other apparently very different systems (such as Germany) in order to better understand political, legal, and economic influences on stock exchange organization and the impact of microstructure on performance. Ultimately, the study contributes to an understanding of the links between financial systems and economic growth. It also advances knowledge across fields of economics, sociology, political science, history, and legal studies. (2) Broader impacts resulting from the proposed activity. The proposed research benefits society by helping devise policies that promote well-functioning, efficient securities markets that finance industry, benefit investors, and spur growth. The PI will disseminate data and results via publications, a website, public presentations, and collaborations with other researchers. The project enhances teaching and training by providing ideas for new courses, research experience for students, and data for students to use in research. The PI, who also oversees the JHU economics honors thesis program, has created a course to introduce students to academic research. The course instills appreciation of scholarly research for the public good and often leads to RA-ships, independent study, and theses under the PI's guidance. As the only woman professorial faculty member in the JHU Economics department until very recently (and previously in the Caltech economics faculty), the PI has become a particularly visible role model. She has a long-standing record of employing, advising, and mentoring women and minority students, thus having additional impact toward broader societal goals.
