Re-Visiting Market Integration and Structural Change in Late 19th Century American Capital Markets

This paper draws on a variety of time series tools to more deeply explore issues surrounding the emergence of a national capital market in the late 19th century. Our focus is on the timing of the emergence of a national capital market. Rather than relying on the absolute narrowing of regional interest rate differentials, which is a common approach in this literature, we use Gregory and Hansen cointegration tests, which allow us not only to test for cointegrating relations in the interest rate series but to identify unknown structural change dates as a byproduct. We also use dynamic conditional correlations to determine the dates at which regional interest rate correlations began increasing. Our results suggest that structural changes are centered around the year 1900, which is consistent with Sylla's argument that the lowering of capital requirements by the Gold Standard Act of 1900 increased bank entry and competition and facilitated regional capital market convergence