The liquidity of the London capital markets, 1825–70†

This article examines the liquidity of the London capital markets in the decades following the liberalization of UK incorporation law. Using comprehensive stock and bond data, we calculate a measure of market liquidity for the period 1825–70. We find that stock market liquidity trended upwards but bond market liquidity did not increase over the sample period. Stock market liquidity during our sample period was partially influenced by the bond market, rather than fluctuations in economic output. In our analysis of the cross‐sectional determinants of individual stock liquidity, we find that firm size and the number of issued shares were important determinants of liquidity.  Finally, we find little evidence of an illiquidity premium, which is consistent with the view that investors did not price liquidity in this nascent market.     

Share repurchases on the Tokyo Stock Exchange Trading Network

Tokyo Stock Exchange Trading Network (ToSTNeT) is a unique market in Japan in which firms can repurchase their shares during off-auction hours at a fixed price within a very short timeframe. In this study, we uncover a drawback in ToSTNeT which appears to have been exploited by managers of the repurchasing firms to favour certain sellers who have close economic ties with the firms. Further investigations reveal that it is impractical for retail investors to sell their shares on ToSTNeT. Our study proposes recommendations of regulatory and policy changes for the Tokyo Stock Exchange that may help tighten the loophole in ToSTNeT and safeguard the integrity of share repurchases in Japan.     

Informational efficiency in the Tokyo Stock Exchange, 1931–40

This article relies on a unique dataset of daily price indices for stocks and bonds to analyse the functioning of the Tokyo Stock Exchange (TSE) in the period 1931–40. We find that this market deviated from weak‐form efficiency, in a context of cross‐market segmentation, short‐run spillovers, and turmoil surrounding major events. In this context, zaibatsu insiders were able to make abnormal returns via informed trading, while other uninformed investors could rely on technical rules to make abnormal profits. Such findings call for a micro‐level analysis of the interwar TSE corporate financing function.     

‘Eating the bread out of their mouth’: Antwerp's export trade and generalized institutions, 1544–5

This article studies the distribution of exports from mid‐sixteenth‐century Antwerp at the individual and group level (grouped by merchant origin). Recently, scholars have argued that sixteenth‐century Antwerp, and in its wake a series of other cities, hosted an open‐access market as a result of an evolution towards open‐access institutions. However, the direct effect of this institutional change on merchant enterprise is hard to measure. Relying on detailed tax records, preferences at the individual merchant level for particular destinations and commodities are documented, to evaluate whether exporters had equal chances in Antwerp's export market. A few exporters had large export shares next to a multitude of smaller merchants. The exports of these smaller merchants to distant destinations and their participation in the export of important products demonstrate a fairly level commercial playing field with regard to their larger‐scale colleagues. Foreign traders had access to trade in Low Countries products, while local merchants were active in the export of major transit products. The activities of the latter group are particularly important; contrary to previous literature, Low Countries traders did not differ in their preference for home‐grown products.     

Share portfolios in the early years of financial capitalism: London, 1690–1730

The dramatic expansion of public and private financial markets in the aftermath of the Glorious Revolution has received extensive attention. Despite this, little is known about how ordinary individual investors managed risk within this framework. Using a newly constructed dataset of share ownership for those joint‐stock companies listed in the financial press of the day, we reconstruct individual portfolio holdings for investors in these companies. We examine individual portfolio holdings first for the decade after the Glorious Revolution and then for the years around the South Sea Bubble. Despite a fivefold increase in the number of unique individuals in the market between the 1690s and the 1720s, we find that in each period roughly 80 per cent of those active in the equity market held shares in only one company, even though many shareholders had the capacity or wealth to diversify share portfolios. These outcomes suggest diversification against idiosyncratic liquidity risk. Overall, however, there is limited evidence that individuals were using their financial portfolios to protect against diversifiable shocks. For many, we argue, company‐specific voting and firm governance rules drove market activity.     

Food prices and the standard of living in London in the ‘century of revolution’, 1580‐1700

This article presents a new price series for seventeenth‐century London and uses the data to construct the first cost of living index for the capital for that period. Comparison with the Phelps Brown Hopkins (PBH) series suggests that although short‐term variations were very similar, there is some suggestion that prices in London were more inflationary after the middle of the seventeenth century than in the PBH series. A new London real wage series, also presented, is consequently less buoyant than that constructed by PBH for their southern building craftsmen.     

Towards the ‘cult of the equity’? Insurance companies and the interwar capital market

This article examines the ways in which insurance companies modified their investment policies during the interwar years, arguing that this period marked the start of the transition from ‘traditional’ to ‘modern’ investment practice. Economic and financial conditions raised considerable doubts regarding the suitability of traditional insurance investments, while competitive conditions forced insurance offices to seek higher‐yielding assets. These pressures led to a considerable increase in the proportion of new investment devoted to corporate securities, including ordinary shares. Meanwhile new insurance investment philosophies began to be advocated, which accorded both legitimacy and importance to the role of ordinary shares in insurance portfolios.     

The Riskiness of Large Audit Firm Client Portfolios and Changes in Audit Liability Regimes: Evidence from the U.S. Audit Market*

We investigate whether the financial riskiness of large U.S. audit firm clienteles varied with the changing audit litigation liability environment during the period 1975‐99. Partitioning the period of study into four distinct periods (a benchmark period (1975‐84), a period of increasing concerns about litigation liability (1985‐89), a period of lobbying for reform (1990‐94), and a post‐relief period (1995‐99)), we find some evidence of risk decreases during 1985‐89, strong evidence of risk decreases during 1990‐94, and strong evidence of risk increases during 1995‐99. However, we also find that over the period of our study, a time during which Big 6 market shares grew appreciably, the proportion of litigious‐industry clients in Big 6 client portfolios grew at about the same rate as the proportion of such clients in the population. Moreover, the Big 6 share of the financially riskiest clients in the economy did not grow as fast as the overall Big 6 market share. In sum, although our evidence is consistent with the hypothesis that the riskiness of Big 6 client portfolios responded to changes in the audit litigation liability environment, we find no systematic evidence of a "race to the bottom" or "bottom fishing" by these firms in a bid to increase their market shares.     

The shift from sterling to the dollar, 1965–76: evidence from Australia and New Zealand

The management of foreign exchange reserves has recently attracted attention from both policy‐makers and historians. Historical research has focussed on the nineteenth century and the interwar period, with less attention to the strategies of smaller countries in the final transition from sterling to the dollar in the post‐1945 period. This article examines the evolution of reserve currency policy from the perspective of Australia and New Zealand in the 1960s and early 1970s. As in the 1930s, economic uncertainty and a shift in global economic power prompted changes in reserves strategy. Patterns of trade and debt and falling confidence in British economic policy prompted a move away from sterling, but the timing and extent of this transition were affected by the fragility of the sterling exchange rate, lack of alternative assets, and continued dependence on the London capital market. The choices for Australia and New Zealand were thus constrained, but they were able to leverage their position as holders of sterling to engage in agreements that provided an exchange rate guarantee for their sterling holdings and continued access to the London capital market. This mitigated the effect of the final global transition from sterling to the dollar while protecting their interests.     

Integration between the London and New York Stock Exchanges, 1825–1925

In this article the integration between the London and New York Stock Exchanges is analysed during the era when they were still developing as asset markets. The domestic securities on both exchanges showed little sustained integration, even when controlling for the different characteristics of stocks, which implies that the pricing of securities in the US and UK was still being driven by local factors. These results place a limit on the view that the pre‐First World War period was the first era of globalization in terms of capital markets. However, there was considerable integration between New York and those listings on London that operated internationally. This suggests that the listing of foreign securities may be one of the primary mechanisms driving asset market integration.     

Taking firms to the stock market: IPOs and the importance of large banks in imperial Germany, 1896–1913

Large universal banks played a major role in Germany's industrialization because they provided loans to industry and thereby helped firms to overcome liquidity constraints. Previous research has also argued that they were equally important for the German stock market. This article provides quantitative and qualitative evidence that although the market for underwriters was dominated by a small oligopoly of six large banks, there was still perceptible competition, which kept fees and short‐run profits low. Another interesting finding presented here is the absence of a signalling effect to investors. Neither underpricing nor the one‐year performance was different for the IPOs issued by one of the Big Six. Thus, although the German IPO business was in the hands of a small oligopoly, investors did not benefit from the lack of competition. One explanation is that the quality of IPOs on the German stock market of the time was very good in general as a result of the competition between underwriters, but also as a result of the tight regulation of underwriting, which ensured the quality of all firms on the German stock market.     

If the landlord so wanted . . . Family,farm production,and land transfers in the manorial system1

The manorial system was a salient feature of the pre‐industrial economy in Europe from the early middle ages until the late nineteenth century. Despite its importance, it is not usually the main focus of eighteenth‐ and early nineteenth‐century European economic history. Looking at a vital manorial economy, this article deals with land transmissions, a crucial factor in the socioeconomic reproduction of pre‐industrial societies, and demonstrates both similarities and important differences between the tenants on manorial land and freeholders. Although their strategies were often similar, we show that the manorial system consisted of a two‐party government—the landlord and the tenant—whose interests did not always coincide. In the nineteenth century, market expansion and commercialization promoted more active landlord strategies in terms of demesne expansions and by means of implementing short‐term leases. This made intergenerational transfers within the family increasingly difficult for tenants.     

Measuring Market Power in Bilateral Oligopoly: The Wholesale Market for Beef

Econometric methods for assessing the degree of market power typically rely on a maintained hypothesis of price-taking behavior on one side of the market or the other. In the analysis of bilateral oligopoly, however, one would like to leave open the question of whether buyers or sellers (or both) behave competitively while allowing for the possible exercise of market power on either side. In this paper, we address the problem of measuring market power in bilateral oligopoly. This requires that we first distinguish among three candidate equilibrium concepts: bilateral price-taking, seller price-taking, and buyer price-taking. Choosing among them comes down to a test of nonnested, nonlinear, simultaneous equation models. Our application to the U.S. wholesale market for beef, characterized by high degrees of concentration among both sellers (beef packers) and buyers (primarily retail grocery chains), reveals seller price-taking among the three candidates to be the most consistent with the data. In particular, the hypothesis of price-taking conduct on both sides of the market can be rejected. This is a conclusion that would not have been reached had we considered monopoly conduct by sellers as the only alternative to perfect competition.     

Loans of the revolution: how Mexico borrowed as the state collapsed in 1912–13

This article assesses why the French and US banks Paribas and Speyers underwrote a series of loans to revolutionary Mexico in 1912 and 1913, when the state was in the process of collapsing. This is a case of a war debt that failed to prevent the borrowing government from suspending payments and subsequently falling. Based on unpublished primary documents, the article shows that the 1913 loan involved a conflict of interest. The credit delayed a default and sustained the price of Mexican securities while Paribas, its main underwriter, was liquidating its Mexican portfolio. Evidence also suggests the existence of asymmetry of information. Paribas accessed pessimistic but accurate first‐hand information on Mexico, while the public read over‐optimistic press reports. Paribas forced the government to sell the bonds on the primary market at a price that was low, controlling for publicly available data. It subsequently sold the bonds at a margin on the secondary market. An additional reason for the lending is the Nacional railway, a state‐owned company that used a share of the funds to pay its debt. More exposed to Mexico than Paribas, the small and internationalized Speyers held the bad bonds it had underwritten.     

Gender,life cycle,and family ‘strategies’ among the poor: the Barcelona workhouse, 1762–1805

Poor relief has received less attention from historians of southern Europe compared with northern Europe. This article seeks to challenge the frequent assumption that the strength of family ties in southern Europe mitigated the need for welfare provision. It provides new data for men and boys entering the Barcelona workhouse in the period 1780–1803, and compares these with data from an earlier study of women and girls who entered the same institution over the period 1762–1805. We establish the characteristics of those who sought relief in terms of age, place of origin, marital status, and occupation. We use the information on reasons for entry and exit to ascertain family circumstances. We show that there were significant differences between males and females in terms of why they entered and left, and length of stay, particularly among the elderly. The bulk of the population of the workhouse, however, was comprised of children and adolescents. For this group, entry into the workhouse represented not just a temporary solution to life cycle poverty and periodic unemployment, but also a longer‐term strategy aimed at smoothing entry into the labour market.     

Globalisation and Consumer Protection in East Asia: is it a zero sum game?

The provision of comprehensive consumer protection legislation is not high on the policy agenda in most developing economies, given what are seen to be more urgent economic and social goals such as encouraging economic growth and the eradication of poverty and illiteracy. Yet large welfare losses can occur as a result of market failure due to the significant information asymmetries that usually exist in developing economies, with buyers being at the mercy of much better informed sellers. It is time to overcome this problem through education, legislation and the creation of appropriate bureaucratic institutions. However, through globalisation the market itself may be able to achieve a greater degree of consumer protection, certainly in the short term, than would otherwise be achieved in the absence of such forces. While globalisation may create problems, it provides an opportunity to solve some consumer protection problems—a benefit from globalisation not previously highlighted. This article suggests that the nations of East Asia seek a regional consensus on developing a culture for consumer protection and on the implementation of consumer protection laws and enforcement procedures.     

An Experimental Investigation of Asset Pricing in Segmented Markets

This article reports the results of experimental asset markets in which participants trade two assets with distinct dividend claims. Some traders are able to transact in the markets for both assets, whereas others can trade in only one market. When some are restricted from transacting in one market, the ineligible asset that cannot be traded by all commands a super risk premium. Without this premium, unrestricted investors would not hold all the available shares of the ineligible asset. In addition, we find that although unrestricted traders have the opportunity to remove all risk, few take advantage of this hedging opportunity.     

Subsistence and sales: the peasant economy of Württemberg in the early seventeenth century

This article examines the engagement of peasant cultivators with the grain market in Germany in the seventeenth century. It demonstrates a differentiated propensity to sell in regard to different grains; a preference among cultivators for retaining subsistence foodstuffs; the importance of payment in kind in the labour market; and the lack of a clear-cut social structural divide between grain sellers and buyers among those who cultivate arable land. It is thus argued that the analytical concept of 'the peasant' retains its use in understanding this society, but that attitudes displayed by the peasantry to 'the market' must be clearly set in the context of the specific product markets and practices to retain any analytical value.     

The demand for residential domestic service in the London of 1901†

This article concerns the effect of income and other variables on the demand for residential domestic service in London in 1901 and presents the first estimated model of the demand for residential service known to the author. It uses previously unexploited data consisting of the incomes and household details of some 500 civil servants. An extension of Becker's model of household production is set out and an ordered probit statistical model of servant demand is estimated. The results confirm the importance of income but also show that the demographic composition of the household was of significance. These results are interpreted in terms of age‐ and gender‐related differences in the supply of labour and the demand for market goods. The results are consistent with the view that middle‐class Edwardian households should be understood as sites of production as well as consumption. A comparison of the statistical results with contemporary recommendations in manuals of household management suggests that those recommendations were typically over‐optimistic. The article presents a ‘ready reckoner’ whereby household income may be estimated from the number of resident servants, but caution in its use is urged.     

Quality Competition and Pricing‐to‐Market: A Unified Framework for the Analysis of Bilateral Unit Values

This article presents a unified framework for analyzing two factors that have been independently studied as determinants of unit values in international trade: product differentiation by quality (which suggests that unit values should be positively correlated with exporters' per capita income) and pricing‐to‐market (which suggests they should be positively correlated with importers' per capita income). No previous work has considered both exporter and importer income effects and allowed these effects to vary by product. On a large sample of bilateral unit values for 2005, we find that about 56% of all Harmonized System (HS)‐6 products demonstrate both significant exporter‐income effects and importer‐income effects, with the former predominating in prevalence and magnitude. Distance‐related effects appearing directly in prices appear significantly larger than one would expect as a result of shipping margins.