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The 1929 Stock Market: Irving Fisher Was Right

Staff Report 294 | Published December 1, 2003

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Edward C. Prescott Senior Monetary Advisor (former)
The 1929 Stock Market: Irving Fisher Was Right


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.

Published in: _International Economic Review_ (Vol. 45, No. 4, November 2004, pp. 991-1009) See related papers: [Staff Report 309: _Taxes, Regulations, and the Value of U.S. and U.K. Corporations_]( [Staff Report 313: _Average Debt and Equity Returns: Puzzling?_]( Quarterly Review articles (Vol. 24, No. 4, Fall 2000) [_The Declining U.S. Equity Premium_]( and [_Is the Stock Market Overvalued?_]( [Additional Files]( [M-files and Ftools](