How did speculation and margin buying cause stock prices to rise, in the 1920's?
Because of margin buying, investors stood to lose large sums of money if the market turned down--or even failed to advance quickly enough. The average P/E (price to earnings) ratio of SandP Composite stocks was 32.6 in September 1929, clearly above historical norms. On October 24, 1929, with the Dow just past its September 3 peak of 381.17, the market finally turned down, and panic selling started.
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