Evidence from the Amsterdam market for government bonds
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| Tobias Jopp is Akademischer
Rat (post-doc) at Universität Regensburg |
Economic
historians have increasingly used market prices for a country’s sovereign debt
to learn more about the importance, or unimportance, of special events seen
through the lens of contemporaries. Such
“special events” typically include war, political turmoil, and economic crisis.
Especially the American Civil War and the Second World War have attracted much attention
in this respect. As opposed to this, the First World War – the “great seminal
catastrophe of the twentieth century”, to use this oft-cited expression – has
been rather neglected. This is where this study kicks in – with focus on
Germany: How did investors perceive the German Empire’s war effort? Which were
the main turning points in war in their eyes? To answer the questions, Jopp looks
at the stock exchange located in Amsterdam, one of the major trading places at
the time. He analyses the price of the German three percent imperial loan between
24th August 1915, when trading in the primary belligerents’
sovereign debt restarted, and 11th August 1919 using standard
methodology to detect structural breaks in a bond’s mean price.
The
study finds that, seen through the lens of bondholders, a concise WWI
narrative centering on Germany should consist of twelve events that, alone,
determined the long-term trend of their confidence. Two events stand out due to
their profound negative effects on investor’s confidence. The one arguably is the
conscription controversy in Britain culminating in late January 1916, when general
conscription was finally introduced. Bondholders seem to have perceived this as
a signal that Britain was likely to get fully involved in the war now; price lastingly
dropped by 14 percent. It seems as if historians usually do not attribute too
much importance to the conscription controversy as it stood in January 1916.
This may be due to the fact that, in hindsight, the conscription program in
Britain was not a great success in mobilizing human resources. The other major
event – sequence of events would be better, actually – is the groundbreaking
and successful Allied Powers’ revival in the Western theatre between summer and
early autumn 1918 leading to the speedy ultimate collapse of the German
lines; price lastingly fell by another 17 percent. In contrast to the conscription
controversy, the Allied Powers’ revival has been established
in the historiography of the war as not only a major turning point, but the
major turning point sealing the fate of the Central Powers. Evidence shows that the meaning contemporary observers
ascribed to a particular event may well differ in some respect from the meaning
historians, or the public mind, ascribe to it retrospectively.
The working paper can be found here:
http://ehes.org/EHES_No52.pdf