Abstract
The Panic of 1907 was largely attributed to several factors, including strong economic growth, high levels of liquidity in the financial system, the ability and willingness of speculators to take significant risk in the stock market, and a banking system without proper checks and balances. These factors all combined to create volatile stock market returns in the United States that are indicative of market bubbles. This paper examined whether a speculative bubble was present in US equity prices during the Panic of 1907 using data from the Cowles Commission. We found that there was no bubble present in stock valuations in the United States during this period and that the Panic of 1907 was a mitigated economic event rather than the fallout of stock speculation. One such contributing factor may lie in the idea that JP Morgan and his House of Morgan were the intervening factor which tempered and stabilized market fundamentals. Their actions of playing the surrogate role of lender of last resort and of containing any financial crises, manias, or panics during this period prior to the Aldrich-Vreeland Act of 1908 and the creation of the Federal Reserve in 1913 may have influenced the quelling of a speculative bubble in 1907.