Despite their central role in today's economy, the development of securities markets in the early United States has received relatively little attention from researchers, perhaps because the historical record of the banking sector, owing to reporting requirements, is far more accessible and complete. Nevertheless, securities markets, starting with informal groups of brokers in Boston, New York, Philadelphia, and Baltimore that traded securities in coffee houses and in the street shortly after the framing of the federal Constitution, have been a fundamental part of the U.S. financial landscape. By early 1792, trading in New York had become adequately voluminous and competition for brokering services so intense that a group of street brokers met beneath a buttonwood tree on Wall Street on May 17 to form an alliance for setting commissions and providing preferential treatment to trades among themselves as opposed to trades with nonmembers. And so with the "Buttonwood Agreement,” the precursor of the New York Stock Exchange (NYSE) was born. By 1830, all of the nation's major cities had developed a network for the trading of debt and equity securities. As communications technologies improved in the late nineteenth century, however, trading became increasingly concentrated in New York, and that city's dominant position in the securities industry persists to this day. The data presented in this chapter offer an overview of the securities markets across the nineteenth and twentieth centuries and reflect the considerable progress that has been made to date in building the historical record of securities market activity from primary sources such as contemporary newspapers.

Common stock represents the residual claim to a firm's assets after all other obligations, including those to employees, suppliers, the government, and creditors, have been paid. This makes common stock the most risky of corporate securities; however, it has provided by far the largest cumulative return over the long term. As the value of a firm's common stock, which includes the potential of the firm's current or future assets to generate future residual claims, depends on investor perceptions of fundamental characteristics of the firm and the overall economic conditions, common stocks tend to fluctuate more widely in price than other direct corporate claims. Preferred stocks operate much like debt in that they promise periodic fixed payments to shareholders. They differ importantly from debt, however, in that failure to keep these promises does not offer grounds for legal action by investors against the firm. Both types of equities are represented in the tables in this chapter.

The tables include a set of stock market price indexes and dividend yield records that track equity performance on an annual basis in New York from 1802 (series Cj797), with separate categories for industrial, railroad, and utilities stocks after 1870 (series Cj800–803). Because Boston was the premier market for trading industrial securities from early in the nineteenth century until New York surpassed it around 1900, the chapter also presents prices and dividend yields for those industrial and bank stocks traded in Boston both at auction and over the formal stock exchange from 1835 to 1897 (series Cj809–810). A wide range of indexes of market performance have become available in recent years, and the most widely used are represented here from their inception dates, including the Dow Jones Industrial Average, the Standard and Poor's 500 Index, the NYSE Composite, the NASDAQ Composite, and the Wilshire 5000 (series Cj804–807). The yields of high-grade preferred stocks also appear in series Cj815–816.

Although stocks often trade frequently in the secondary market after their issue, it is in the primary market, or the market for new securities, that corporations raise external funds for investments and new ventures. In this respect, the aggregate value of new issues reflects the business climate at a point in time because firms are more likely to raise funds when they can do so at low cost, or when interest rates are low. Although bonds are the securities whose prices are most directly linked to interest rates, these rates also figure prominently in determining the returns that investors will require to hold common stocks in a given risk class, and thus affect offering prices. The role of primary markets in the distribution of both initial public offerings (IPOs) and the new issues of firms that have sold stock to the public before ("seasoned” offerings) is one of mobilizing and directing an economy's resources to projects that offer the highest returns. The size of this market in each year since 1933 is included here to document the ebbs and flows of new corporate capital, along with that of new issues of state and local government securities (Table Cj817–830).

For financial markets to function well, investors must be able to sell their assets quickly at prices that reflect their intrinsic or "true” value. Though a high volume of transactions may simply reflect the disruptive phenomenon of "churning,” it is also closely related to market liquidity. Where there is a liquid financial market, there will be firms hoping to raise funds and list there because listing provides a mechanism through which the venture capitalist can "cash in” on successful projects. Because firms hope to maximize their stock price and because a share in a liquid market will trade at a higher price than an identical share in an illiquid market, the existence of a liquid stock exchange will tend to concentrate transactions within an institutional structure where informational asymmetries are smallest, promoting efficiency in the asset allocation process.

A number of series for transactions quantities are reported in this chapter as a means of observing growth in the securities markets generally. They include the annual volume and value of shares traded on the NYSE from 1879, and those of bonds from 1910 (Table Cj857–858). Also included are the annual values of trades on all registered stock exchanges, and on the New York Curb/American Stock Exchange (AMEX) specifically from 1935 (series Cj853–854). Overall, activity on the AMEX and the regional stock exchanges has been small compared to that on the NYSE, but the emergence of the NASDAQ system (operated by the National Association of Securities Dealers, or NASD) has contributed very significantly to trading volume over the past decade, often exceeding that on the NYSE in terms of the number of shares changing hands. The chapter thus includes annual NASDAQ trades since its start in 1971 (series Cj855–856).

As participation in securities markets by institutions and individuals becomes more widespread, the role of mutual funds in channeling funds to the capital markets has become increasingly important. Mutual funds are popular because they save many investors, for a fee, the time and expense of maintaining portfolios with small holdings of any individual security. Such portfolios would be costly to adjust, yet mutual funds, by spreading management and maintenance costs across a number of investor accounts, can offer a diversified portfolio to investors at low cost. The table that presents the number, value, and net redemptions of mutual fund shares since the passage of the Investment Company Act in 1940 reflects the recent and rapid rise in ownership of these shares (Table Cj859–862).

To buy stocks, investors often tender cash to their brokers, yet brokers will also lend to their customers to finance security purchases. If many such loans are made during a bull market that later experiences an unanticipated correction, the brokerage industry and the economy in general could be adversely affected by defaults. To avoid the excessive use of credit in the purchase of stocks, the Federal Reserve limits the degree to which this can be done by imposing a "margin” requirement. As can be seen in Table Cj863–865, the margin requirement changed fairly frequently from 1934 on, but it has remained at 50 percent since January 1974.