Journal of Economic History


The Crisis of 1873: Perspectives from Multiple Asset Classes


a1 Director of Alternative Investments Strategy, Société Générale Corporate & Investment Banking, 1221 Avenue of the Americas, New York, NY 10020. E-mail:


This article analyzes asset pricing behavior during the period leading up to the Crisis of 1873. Evidence is presented that equities, options, and bonds priced risks consistently, suggesting that investors were actively monitoring the risk of investing and were not caught up in an irrational, speculative mania. Implied probability density functions for stock returns suggest that option markets exhibited growing concern about substantial price declines prior to the crash. Concerns were concentrated on riskier, more leveraged firms. Deteriorating balance sheet fundamentals for the riskiest U.S. railroads set the stage for a market disruption in 1873 as information asymmetries worsened.


I would like to thank two anonymous referees and the editor (Jeremy Atack), whose comments led to substantial improvements in the article. I also thank participants of the 2005 Southern Economic Association conference, particularly Brandon Dupont, for helpful comments. Asaf Zussman generously shared his real exchange rate data, facilitating some of the analysis. An earlier draft was circulated under the title “Equity Options and the Crisis of 1873.” This article reflects the opinions of the author and does not necessarily reflect the opinions of Société Générale.