Journal of Political Economy Vol. 127 No. 2 2019
Counterparty Risk and the Establishment of the New York Stock Exchange Clearinghouse
Abstract
We examine the effect of the establishment of the New York Stock Exchange (NYSE) clearinghouse in 1892 on counterparty risk using a novel historical experiment. During this period, the NYSE stocks were dual-listed on the Consolidated Stock Exchange (CSE), which already had a clearinghouse. Using identical securities on the CSE as a control, we find that the introduction of multilateral net settlement through a clearinghouse substantially reduced volatility of NYSE returns caused by settlement risk and increased asset values. Our results indicate that a clearinghouse can improve market stability and value through a reduction in network contagion and counterparty risk.
- DOI
- 10.1086/701033
- Volume
- 127
- Issue
- 2
- Pages
- 689-729
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref