This 2-part series discusses the emergence of financial derivatives after the collapse of the Bretton Woods accord in 1971. In Part 1, the article explains the concepts that enabled financial derivatives markets to flourish, focusing on the required mathematical concepts. Part 2 continues with...

This paper exploits a natural experiment from the late 1800s in which many U.S. firms had inadvertently issued both taxable and tax-exempt bonds. Investors paid income tax on taxable bonds, but firms covered income tax on investors' behalf on tax-exempt bonds. Using a unique data-set of these...

Using historical data that spans almost 150 years, we examine whether there is a long-run equilibrium relationship between the stock's earnings and bond yields. The novelty of our econometric methodology consists in using a vector error correction model where we allow multiple structural breaks...

Financial analyses such as valuation, solvency and capital adequacy play a crucial role in bankruptcy. Over the course of the 20th century, methods of financial analysis in bankruptcy have shifted from earnings multiples to discounted cash flow (DCF) and recently to market-based approaches such...

This paper constructs the first repeat sales house price index in United States history before 1950, using data from Baltimore. It shows that house prices fell more during the 1890s and 1930s than existing data indicate. As a result, while previous data suggest most borrowers should have been...

I assemble an annual time series of bid-ask spreads on Dow Jones stocks from 1900-2000, along with an annual estimate of the weighted-average commission rate for trading NYSE stocks since 1925. Spreads are cyclical, especially during periods of market turmoil. The sum of half-spreads and one-way...

We study corporate bond default rates using an extensive new data set spanning the 1866–2008 period. We find that the corporate bond market has repeatedly suffered clustered default events much worse than those experienced during the Great Depression. For example, during the railroad crisis of...

The tax burden on equity securities has varied substantially over time and remains a source of continuing policy debate. This paper investigates whether investors were compensated for the tax burden of equity securities over the period between 1913 and 2006. Taxes on equity securities vary over...