Literature Review and Methodology

Abstract

The valuation of stock markets, and specifically, instances of financial euphoria when these seem to deviate from fundamental expectations have been of perennial interest to economic and financial academia since the 1929 Crash and the Great Depression. Academic research into the boom and bust of the 1920s and 1930s was conducted in the years following, such as Cowles (1938) and Williams (1938) but has only really developed with a specific focus on the 1920s since the 1970s. This is due to advances in financial valuation theory and as the field of finance generally became more developed. The advent of computer technology has allowed the collation of data such as the CRSP database, and testing of these data has become more accurate due to the statistical power of the econometric tests we can use. The following sections discuss the modern analyses of the period and the types of tests used and inferences drawn.