When ‘No News’ is Bad News:
Complexity and Uncertainty in the Global Crisis of 1914
Caroline Fohlin 1
Emory University
November 26, 2016
“…no one thought it possible that all our boasted bonds of civilization were to burst overnight and
plunge us back into mediæval barbarism.”
--Henry Noble, Chair of the NYSE, in 1915, reflecting on the outbreak of WWI
Abstract
I use the global crisis of 1914 as a window onto the phenomenon of investor reaction to
complex news—such as sudden political upheaval. Based on a novel database of all stocks traded
on the NYSE during 1914, along with “real-time” news accounts from major newspapers, I show
that NYSE investors ignored the assassination of the Austrian heir and hardly reacted to the
Austrian Ultimatum, which in retrospect insured the imminent start of a protracted, pan-European
war. Signs of uncertainty—spikes in volatility and illiquidity, as well as trading volume—appeared
in the NYSE only after Austria invaded Serbia and stock exchanges began to shut down around
the world. I attribute the lagging reaction to the complexity of the political situation and inability
of investors to foresee (or to believe) the broader breakdown of international relations and the
inevitable impact on world financial markets.
I also examine the ability of market interventions to mitigate the impact of disasters and
related uncertainty shocks. The analysis demonstrates that, following a four-and-a-half-month
closure, the NYSE returned to near normal levels of volatility and liquidity, suggesting that traders
felt confident that the US would remain neutral. Trading volumes increased after the closure, due
to renewed confidence in the liquidity of US financial markets and banks—a finding supported as
well by falling rates in the overnight call money market. Notably, US stocks with the most
international activity showed essentially no greater response to the political upheaval than those
without.
1
Contact [email protected]. This paper began as a joint project with Zachary Mozenter (Emory alumnus
2014). I thank him for his extensive data collection and work on earlier versions of this paper. I am also
grateful to Jue Ren and Caitlin McDonald for research assistance. The NYSE data gathering project was
funded by the National Science Foundation, for which I am extremely grateful. I also thank Emory College
of Arts and Sciences (PERS) and Emory University (URC) for additional grant funding. Finally, for helpful
comments and suggestions, I thank Angelo Riva and Marc Weidenmeir, as well as seminar and conference
participants at the EHA, ASSA, Paris School of Economics, and American University.
I.
Introduction
“Hindsight is 20-20,” or so the saying goes. Investors often look back at events and realize that
they missed the signs of an impending boom or bust. While no individual possesses perfect
foresight, financial markets as a whole usually do succeed in aggregating information and
incorporating relevant news into security prices—in other words, maintaining efficiency. When
disaster strikes, markets work to price in the aggregated expected impact. But some news may
prove difficult to analyze and understand—or even to recognize as salient. What if investors do
not realize that a disaster is about to strike, or has already struck? What if investors diverge in
their views on a disaster’s impact, or if the crisis could increase the value of some assets but not
others? Investors may need time to recognize the importance of events and then to analyze the
financial and economic ramifications of the news, especially when events seem to lack direct or
immediate consequences. In other words, investors may be slow to understand that they should
be uncertain or that risk has indeed risen.
The global crisis of 1914, I argue, is just such a case. As we now know, the assassination of
Archduke Ferdinand on June 28th of that year marked a turning point in the world order and the
start of a decades-long era of political and economic upheaval. 2 At the time, however, these facts
remained unclear to investors, especially those in the US, trading largely domestic securities on
the New York Stock Exchange. The international political crisis, and the acute global financial
crisis that ensued, provide a unique opportunity to examine the news-uncertainty phenomenon in
financial markets, as well as policy efforts to quell investor uncertainty and market upheaval.
The 1914 financial crisis was the last panic of the pre-Fed era, so when Austria declared war on
Serbia in July of 1914, the US financial system operated with minimal government regulation but
also without a central bank backstop, since even the would-be central bank was a few months
away from opening its doors. Before the Fed, the New York Stock Exchange and institutions
operating there had to negotiate ad-hoc and largely private solutions to periodic panics. 3 Yet the
2
3
See Martel (2014) for an extraordinarily detailed account.
See Fohlin, Gehrig, and Haas (2016) on the market liquidity crisis set off during the Panic of 1907.
2
events of summer 1914 took place in a less laissez-faire environment than had past crises, coming
as it did less than 7 years after the traumatic 1907 panic and the subsequent enactment of the
Aldrich-Vreeland Act of 1908—legislation that created a quasi-central bank style liquidity
backstop for national banks. The Congress renewed the emergency currency upon hitting its fifth
year, in 1913, placing crucial liquidity tools at the Treasury’s disposal. 4 For the New York Stock
Exchange, and for the US economy, the 1914 crisis ended quickly and with little opportunity to
spill over into the broader economy. Indeed, US markets expanded during the ensuing war years,
bringing in hundreds of new stock issues and taking trading volume to new heights. 5
Thus, by studying both the onset of the crisis and its resolution, this paper contributes
simultaneously to at least two separate literatures in economics, and in the process, elucidates
some important, lesser-known pieces of financial history. First, using a comprehensive new
database of all stocks trading on the New York Stock Exchange during 1914, I investigate the
impact of the growing European crisis on the cross section of stock liquidity and volatility on a
day-by-day and week-by-week basis. I track the information revelation process through the lens
of contemporary investors, using daily news accounts in the New York Times, Wall Street Journal,
and other periodicals. Because of the slower speed of information transmission and market
transaction technology in that era, we can observe the unfolding of the process from the start of
what would turn out to be critical events—the assassination of the Austrian heir on June 28,1914
and the Austrian Ultimatum to Serbia on July 23rd—to Austria’s declaration of war five days later.
We can see the lag as investors digest news, when they realize they have entered a state of
uncertainty, and how they react to it. Months later, after the re-opening of the NYSE, we can
evaluate the market’s recovery from the shock.
The fine-grained analysis turns up rather surprising results: While historians view the
Archduke’s assassination as a defining event, and see the Austrian Ultimatum as the turning point
in the stand-off and a clear indication of Austria’s (and Germany’s) intent to wage war in Europe
more broadly, NYSE traders hardly reacted to these events. Spreads widened and volatility and
4
See Jacobson and Tallman (2015).
Fohlin (2016) provides comprehensive analysis of weekly data on all stocks traded on the NYSE from 1911
through 1929.
5
3
Amihud measures increased dramatically only after Austria declared war on Serbia, and when US
investors had read detailed reports in their morning newspapers announcing—complete with
map—that Austrian troops had invaded Serbia at Mitrovicza, 50 miles northwest of Belgrade. 6
Perhaps even more crucially for US markets, major European financial markets began closing that
day and virtually all markets shut down within two days. Nonetheless, investor sentiment and
market impact remained relatively restrained, compared to the equivalent European markets, such
as London, Paris, and Berlin. 7
In the second stage of analysis, I examine the resolution of the financial crisis and the return to
full operation of the exchange, following multi-pronged stabilization efforts by the Treasury and
by the NYSE governing committee. As European markets closed, investors feared that the US
Treasury might fail to uphold the gold standard.
In response to the incipient financial crisis, the
NYSE shut down trading, and Treasury Secretary William McAdoo initiated policies to staunch the
liquidity outflow from U.S. financial markets and to infuse US banks with liquid reserves via the
renewed and expanded Aldrich-Vreeland Act’s emergency currency provisions. 8 The closure
prevented a reactionary sell-off in the market and allowed time for investors to digest the initial
shock of war. The emergency currency simultaneously insured banks could pay outstanding
claims and continue operating, and in doing so, bolstered confidence in the banking system and
in the gold standard.
While the four-and-a-half-month closure probably lasted longer than necessary, the evidence
here demonstrates that markets returned to near normal liquidity conditions by the time the NYSE
reopened in December 1914: across all quartiles of stocks, spreads narrowed and volatility
decreased. The overnight call money market remained stable, though somewhat expensive,
throughout the closure and met the reopening of the market with a rapid decline in rates to preclosure levels. The improved behavior of the markets suggests that the policy interventions
alleviated the incipient drain on liquidity, restored confidence in the financial system, and enabled
investors to resolve their uncertainty over the war’s impact on corporate profits and asset
6
See “Austrian Troops Invade Servia; Cross Line as Powers Talk Peace,” in The New York Times, July 28th,
1914. Accessed April 12, 2016, via The New York Times online archive.
7
See Roberts (2014).
8
Jacobson and Tallman (2015).
4
valuations. The US financial system staved off a major, prolonged crisis and actually gained a
competitive advantage over its European counterparts. 9
The remainder of the paper provides in-depth details. The next section explains the theory
and methodology for studying the impact of disasters and accompanying uncertainty shocks.
Section 3 describes the series of ‘news’ events leading to the outbreak of war as well as news
surrounding the resolution of the crisis and reopening of the NYSE. Section 4 introduces the new
data set, which includes comprehensive NYSE stock transaction, quotation, volume, and
capitalization data at a daily frequency during the crisis and at weekly frequency for the full year
of 1914. Section 5 presents the estimation results, and section 6 concludes.
II.
Uncertainty and Market Quality
Much past work shows that disasters, news, and uncertainty affect market volatility and risk
premia. 10 Studies of long-term patterns, such as Schwert (1989), Rietz (1988) and Barro (2006),
demonstrate that standard asset pricing arguments fail to explain observed shifts in the level of
market volatility and suggest that political upheaval or expectations of rare but major disasters
can fill the gap in explanatory power. Generalized political uncertainty clearly seems to play a
role over extended periods. Bittlingmeyer (1998), for example, shows that the political upheaval in
Weimar Germany increased aggregate stock return volatility, and Voth (2002) links elevated
market volatility during the interwar period to heightened political uncertainty due to strikes and
demonstrations. Conversely, Brown et al (2006) argue that the extended calm of Pax Britannica
(1814-1914) promoted markedly lower volatility in British consol returns.
Extreme political disasters, such as assassinations or the start of war, are rare, but they
usually impact financial markets more immediately and severely. Berkman et al (2011) examine a
large sample of such disastrous events over nearly 90 years, starting with the 1918 political crises
in Europe, and find evidence that perceived risk of rare (political) disasters relates to lower returns
and heightened volatility. Likewise, volatility declines once the disaster ends. The case of 1914—
9
See Roberts (2014) on the 1914 financial crisis in London and similar liquidity actions there.
Wisniewski’s (2016) survey article on politics and stock returns discusses a wide range of research on this
topic.
10
5
the crisis onset in the summer and the resolution of uncertainty (for US markets) in the late fall—
should therefore follow this sort of pattern.
While the majority of previous studies analyze stock returns and volatility, uncertainty
shocks should also impact the liquidity of the market due to ambiguity regarding asset valuations
and potentially wider information gaps among transacting parties. Pasquariello and Zafeiridou
(2014) tie political uncertainty into microstructure theory, distinguishing among three effects:
information asymmetry, ambiguity, and disagreement. They suggest that political uncertainty is
in fact a form of fundamental uncertainty and therefore causes information asymmetry and raises
the value of inside information about firm fundamentals. Increased trading by informed insiders
may thereby lower market depth and increase adverse selection risk, inventory holding costs and
price impact. They also note that ambiguity affects the quality of fundamental information, as in
Epstein and Schneider (2008) and Ozsoylev and Werner (2011), and prompts ambiguity-averse
traders to reduce trading activity and diminish market liquidity. Finally, the disagreement
hypothesis invokes heterogenous beliefs and the resulting implication that fundamental
uncertainty widens the differences among market participants’ opinions. Disagreement over
fundamental value increases the incentive to trade and thereby leads to higher volume. Thus,
while political shocks may cause more or less trading activity, they will clearly widen spreads and
exacerbate price impact.
Pasquariello and Zafeiridou find evidence that trading volume and liquidity both drop ahead
of presidential elections, and improve afterwards. They do note that the US presidential elections
that they study may raise endogeneity concerns, since politicians may alter policies to raise their
likelihood of reelection. By contrast, the assassination and subsequent steps toward war in 1914
came seemingly out of nowhere—at least from the US viewpoint—thus providing thoroughly
exogenous shocks and allowing clean identification of their impact on markets.
In related work, Hermes and Lensink (2001) focus on capital flight, or flight to safety, a
phenomenon induced by the existence of extremely high uncertainty and risk. Investors in fear of
losing wealth due to such events as sudden exchange rate depreciation, default on government
debts, changes in capital controls, financial market regulation, and changes in tax policies are
6
likely to remove their capital from the affected market. In the context of the run-up to WWI, this
theory predicts the liquidation of asset holdings once investors became concerned about the risk
of war. Once the war started, and the US unequivocally proclaimed its neutrality, the NYSE
became the only major market located in a non-combatant country.
All the available hypotheses conclude that uncertainty shocks increase the volatility of stock
returns and the illiquidity of the market. Moreover, asset valuation uncertainty resulting from
heightened volatility will cause market makers to widen their spreads. Uncertainty may
additionally widen spreads by exacerbating information asymmetry, as insiders gain an advantage
in assessing the impact of new policies on corporate profits. Notably, even beneficial policies and
events may temporarily increase volatility and widen spreads, if market participants are uncertain
or asymmetrically informed about the policies’ impact. Finally, spreads also widen in the event of
order imbalance, for instance, if there is a sudden demand to liquidate holdings in a market.
Based on this literature, I evaluate the significance of the various uncertainty shocks in the runup to WWI, using volatility, bid-ask spreads, and Amihud’s illiquidity measure as indicators of
market quality. All three indicators should react immediately following an event that comes as a
shock to investors. Given Brown et al (2006) and Pasquariello and Zafeidou (2014), the converse
should hold as well: policies that reduce the uncertainty surrounding the value of assets, and
clearly improve profitability or at least widely thought to do so, should ameliorate stock market
volatility and illiquidity.
The impact on trading volume is less clear. High uncertainty may cause investors to halt
trading and thereby suddenly reduce trading volume, but events that precipitate capital flight will
first engender a sudden increase in trading volume. The historical narrative in the next section
suggests that asset valuation uncertainty as well as the need to repatriate funds for war
preparation clearly led initially to capital flight out of the NYSE, and that effect implies a surge in
trading volume. Once the initial phase of capital flight wanes, however, high uncertainty
theoretically reduces trading volume. Thus, the empirical assessment of trading volume will yield
varying results depending on timing.
7
The empirical model for bid-ask spreads adapts the well-known specification from Stoll
(2000), as follows: the quoted percentage half spread is a function of the given stock’s price level,
trading volume, price volatility and market capitalization. Stoll argues that inventory risk
associated with market-making in securities suggests stocks with high trading volume should have
narrow spreads because high volume allows traders to return quickly to a zero-inventory position.
Higher measures of trading activity also reduce the adverse information effect per trade, which
narrows spreads. Lower priced stocks should have wider spreads relative to their prices because of
the minimum tick size, which during our period is fixed at 1/8th. At least in more recent times,
lower priced stocks also tend to be riskier, and higher priced stocks tend to be more stable, and
have a lower chance of informed trading. Similar arguments apply for market capitalization, to the
extent that larger companies have broader share ownership and more accessible information, as
well as more active, liquid trading in their securities. Stocks with large return variances should
trade with wider spreads because greater volatility means any nonzero inventory position is riskier,
and market makers face higher likelihood of trading against traders with adverse information. I
also include issue identifiers, to follow individual securities in the panel regressions.
These considerations yield the following base model of percentage half spreads:
𝑆𝑆𝑖𝑖𝑖𝑖=𝑎𝑎0 +𝑎𝑎1 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖𝑖𝑖 +𝑎𝑎2 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖𝑖𝑖 +𝑎𝑎3 𝑞𝑞𝑞𝑞𝑞𝑞𝑞𝑞𝑖𝑖𝑖𝑖 +𝑎𝑎4 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖𝑖𝑖 +𝑒𝑒𝑖𝑖𝑖𝑖
where Sit =100*(ask-bid)/(2*P) for stock i at time t (at close of the market)
Pit =Last transaction price of the day for stock i at time t
= indicates the number of shares traded for stock i at time t
qvolit = 100*(high-low)/ Pit for stock i at time t
𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑖𝑖𝑖𝑖 = (number of shares outstanding)* Pit , where number of shares outstanding = capital
stock/par value of shares (also for stock i at time t)
Since financial data are notoriously prone to outliers, I estimate the models using quantile
(median) regression, to down-weight extreme observations. Given the panel structure of the data,
8
I cluster on stocks and test the model using random effects regression and winsorize the most
extreme values at 1%.
Expanding on the base model, I then test the hypotheses on the key uncertainty shocks,
described in detail in the next section, by including a binary variable taking the value of 1 for the
event and several days following and 0 for the pre-event control period (Table I). Including
indicator variables for the key events primarily addresses cross sectional heterogeneity over short
pre- and post-event periods. Further, the dataset is unbalanced, and rotating, since not all stocks
trade in every day. 11 In a final set of tests, I study the impact on stocks with high proportions of
foreign investment, using an indicator for the NYSE’s designation of “international in character”
stocks.
III.
Events During the Global Crisis of 1914
In retrospect, it is easy to see how the chain of events in Europe in the summer of 1914 led to a
global war lasting several years. But in June of 1914, even after the assassination of the Austrian
Archduke and his wife, virtually nobody expected these events to take place, and even as the war
increased in scale and scope over the first few months, combatants and commentators anticipated
a rapid conclusion. By the fall of 1914, investors could see how some US corporations and
commodities producers might profit from the war. Thus, in thinking about what constitutes news
and what events “should” prompt investor uncertainty, we must distinguish between salient events
that we realize after the fact and the true state of information that investors could reasonably
possess in real time.
To determine accurately the appearance of potential uncertainty shocks, I use
contemporary primary sources, such as the major newspapers and financial periodicals of the day,
to examine the chronology of events from the perspective of investors at the time. By viewing
only the information they would have clearly seen before making their trading decisions, I can
pinpoint the timing and severity of events that might have provoked uncertainty over trading and
11
I also estimated the model using Stata’s robust regression routine, since it also down-weights outliers.
The results are very similar. Results from alternative models are available on request.
9
investment decisions. Similarly, I can also track the resolution of uncertainty and measure the
speed of dissipation of the effects on the stock market.
These sources also narrate and interpret
the behavior taking place in the markets, albeit, as is the case today, involving a good measure of
speculation.
To set the stage, consider the “post-mortem” on the crisis, written in 1915 by the NYSE
President Henry Noble:
While the standing armies of Europe were a constant reminder of possible
war, and the frequent diplomatic tension between the Great Powers cast repeated
war shadows over the financial markets, the American public, at least, was entirely
unprepared for a world conflagration. Up to the final moment of the launching of
ultimata between the European governments no one thought it possible that all
our boasted bonds of civilization were to burst overnight and plunge us back into
mediæval barbarism. Wall Street was therefore taken unaware, and so terrific was
the rapidity with which the world passed, in the period of about a week, from the
confidence of long enduring peace to the frightful realization of strife, that no time
was given for men to collect their thoughts and decide how to meet the on-rushing
disaster.
Added to the paralyzing effect of this unheard of speed of action, there
came the disconcerting thought that the conditions produced were absolutely
without precedent. Experience, the chart on which we rely to guide ourselves
through troubled waters, did not exist. No world war had ever been fought under
the complex conditions of modern industry and finance, and no one could, for the
moment, form any reliable idea of what would happen or of what immediate action
should be taken. These circumstances should be kept clearly in mind by all who
wish to form a clear conception of this great emergency, and to estimate fairly the
conduct of the financial community in its efforts to save the day.
1.
Pre-cursor to war
According to modern-day retrospective accounts, the assassination by a Serbian nationalist of the
Austrian Archduke Franz Ferdinand, heir to the Austrian throne, set off World War I. The murders
took place on June 28, 1914, a Sunday, and the news spread worldwide before newspapers went
to press the next morning. Contemporaries, however, failed to grasp the gravity of the situation.
Silber (2007a), thus far the most complete study of the NYSE during this period, finds that the
assassination had no impact on NYSE price levels. The event was a ‘no news’ in terms of investor
10
uncertainty, particularly in the US, as the subsequent analysis of market liquidity and volatility
further demonstrates.
The lack of response makes sense considering what US investors knew at the time. Balkan
hostilities had been simmering for years, and readers of the New York Times and other periodicals
were accustomed to reading about geopolitical strife in southeastern Europe, and about the
recent Balkan Wars (1912-13), in particular. Indeed, the word “Servia” (the English name of Serbia,
used at that time) appears in over 500 articles in the New York Times in 1912 and 1913 alone, and
the phrase “Balkan War” appeared in over 300 articles in those same two years. Thus, investors in
New York seemingly viewed the episode as a confined, regional dispute and discounted the
likelihood of a pan-European war. As shocking as the killings were, and despite the fact that the
Monday morning newspapers printed pages of stories on the assassinations in their primary news
sections, the New York Times financial section made no mention of the assassinations, much less
predicting any financial disturbances as a result. A New York Times article titled “Sentiment in
London Reassured by the Calmness of the Continental Exchanges,” dated two days after the
assassinations, described how, despite the tragedy, bourses of Europe and the NYSE were
unaffected. 12
2.
The Austrian Ultimatum
After several weeks of political machinations among the European powers, Austria delivered a list
of demands—the so-called Austrian Ultimatum—to the Serbian government in Belgrade at 6pm
on July 23rd. 13 The front page of the New York Times the next morning read, “Austria Ready to
Invade Servia, Sends Ultimatum . . . Servia May Not Comply.” 14 This article also noted that
“Bourses of Europe,” New York Times, June 30, 1914
The Brigham Young University Library hosts a digital collection of WWI documents, including the text of
the Austrian Ultimatum: https://wwi.lib.byu.edu/index.php/The_AustroHungarian_Ultimatum_to_Serbia_(The_German_original) (last accessed September 13, 2016). The ultimatum
document is dated July 22nd. Martel (2014) details the ongoing political negotiations throughout the weeks
between the assassination and the ultimatum.
14
“Austria Ready To Invade Servia, Sends Ultimatum,” New York Times, July 24, 1914. In the New York
Times, according to the newspaper’s own word count application, the spelling of Serbia shifted almost
entirely from ‘Servia’ to the version with a ‘b’ in 1915.
12
13
11
“Germany and Italy have expressed full approval of the Austrian programme and announced their
readiness to go to extremes to keep the ring for their ally in case interference in support of Servia
is offered from any quarter.” 15 The involvement of Italy and Germany raised the stakes of this
conflict substantially, and caused worry that Europeans would engage in all out warfare. Political
uncertainty in Europe rose to an extremely high level, and European markets reacted.
In New
York, Silber (2007a) found that prices fell by one-half of 1 percent on July 23 and 1 percent the
following day. 16
The bad news continued: The New York Times financial page reported on the 25th, “Europe
Unsettled by Austrian Note: Continent Weaker than London—Heavy Break in Rentes; Berlin Very
Weak.” In a separate article the same day, headlined “Austria’s Ultimatum Brings More Foreign
Selling—Rumor of Further Gold Exports,” the author relayed that “International bankers,
discussing the chance of a general war in Europe growing out of the Austro-Servian episode, said
yesterday [ie, Friday, July 24th] that they believed the struggle would be localized or that actual
conflict would be avoided because Servia would comply with the Austrian demand before an
invasion was made.”
US investors were well aware of the disruption of European markets, with reports on the 25th
alerting readers that “All the European bourses were disturbed and discount rates rose sharply,
while foreign government securities fell.” The Times even warned “The impression gained from
Berlin dispatches was that Austria would almost certainly start an invasion of Servia.” The New
York Tribune on the same day (25th) devoted its largest front page headline—and three column
widths—to the European situation, exclaiming “Europe at Point of War; Russia Back of Servia in
Resisting Austria.”
The onslaught of European news continued: On Sunday, the 26th—the day after Serbia’s
partial concession to Austria—the New York Tribune led with a four-column headline, “AUSTRIAN
ENVOY QUITS; RUSSIA MOBILIZES TROOPS; GERMANY EAGER FOR WAR.” The article beneath
“Austria Ready To Invade Servia, Sends Ultimatum,” New York Times, July 24, 1914
Silber (2007a p. 11). Since the ultimatum only arrived in Belgrade around noon eastern time in New York,
and the news could not spread instantaneously through the New York market, the 24th should be
considered the bigger “news” day for this event.
15
16
12
detailed the political negotiations and the war preparations across central Europe. Also on
Sunday, the Tribune’s financial page reported “WAR SCARE UPSETS FOREIGN BOURSES” and
explained that “European Government Issues Break Heavily in Demoralized Trading.” The article
continued further to describe “panic conditions” in London. The next day, Monday, July 27th, The
Annalist reported, “The selling in London, Paris and Berlin on Friday and Saturday [July 24th and
25th] developed panicky conditions and heavy breaks occurred not only in company securities but
also in Government issues.” 17 Clearly, by the time the NYSE opened on Monday morning,
investors there had a dramatic, if complex and confusing, picture of events taking place in Europe.
3.
Austria invades Serbia and declares war; Russia mobilizes troops
Confirming the world’s fears, Austria invaded Serbia on July 27th and declared war on that country
the next day.
In its weekly market roundup on August 3rd, The Annalist reported, “Tuesday [July
28] brought about a panic on the London Stock Exchange, which ended in a paralysis that made it
impossible to transact business. Prices broke away from any consideration of values involved, not
only there but in Berlin and Paris.” 18 The selling put heavy pressure on the NYSE, but the
exchange handled it well, and could have absorbed further liquidation. 19 The same report noted
that on July 29th the NYSE “breaks sharply at the opening, but rallies well later.” 20 In reaction to
news on July 30, “Further heavy liquidation in the stock market depresses prices to the lowest
levels of the present movement.” 21 Silber (2007a) finds after the declaration of war on Serbia,
NYSE prices fell by 3.5% and after Russian mobilization the next day, prices fell by 6%, the largest
one-day drop since March 14, 1907. 22 The New York Times front page on July 31st read, “Kaiser
calls on Russia to halt within 24 hours; If she refuses Germany, too, will mobilize.” 23 A significant
part of the price declines across the NYSE likely stemmed from European liquidation.
Foreign Correspondence, The Annalist, July 27, 1914
A Week’s War Havoc, The Annalist, August 3, 1914
19
A Week’s War Havoc, The Annalist, August 3, 1914
20
Financial Chronology, The Annalist, August 3, 1914
21
Financial Chronology, The Annalist, August 3, 1914
22
Silber (2007a p. 11).
23
“Kaiser Calls on Russia . . . Back from Belgrade,” New York Times, July 31, 1914
17
18
13
Accompanying this liquidation, gold outflows and exchange rates similarly posed serious threats
to U.S. financial market stability during this week.
4.
European liquidation and foreign market closures
European liquidation affected the NYSE so profoundly because British investors held more than
$3.3 billion in American corporate and municipal securities, and Germany and France held
substantial investments as well. 24 While Europeans suddenly liquidated their NYSE holdings to
prepare for war, U.S. debtors clamored to pay off short-term debt repayments to Europe in
Sterling (a substantial portion of debt matured in late summer due to agricultural cycles). 25 With
such a sudden demand for Sterling, in the last week of July, Sterling to Dollar exchange rates rose
rapidly, and the Annalist reported, “Foreign exchange was practically non-existent by Saturday
(July 26), such small amounts as could be secured being paid for at fabulous rates.” 26 The dollarpound (sterling) exchange rate hit the extreme rate of $6.75 in late July, despite a parity of
$4.8665 (Crabbe, 1989). The premium on sterling would have made gold exports extremely
profitable, yet arbitrage became difficult, because shipping insurance was increasingly scarce. The
Annalist reported, “Insurance on outgoing gold, which had risen to the abnormal rate of $10,000
on each million, was almost unobtainable at any price by the end of the week.” 27 Secretary of the
Treasury William Gibbs McAdoo feared further outflows would force the U.S. off of the gold
standard and severely damage U.S. financial credibility, and if exchange rates were not returned to
parity in the following months, U.S. debtors would not be able to meet their debts. 28 Crabbe
(1989) argues that US financial system appeared to be on the verge of collapse.
As investors from England, France, and Germany liquidated holdings in markets abroad,
the world’s exchanges began to close. On July 28th the Montreal, Toronto, and Madrid exchanges
24
George Paish, “Great Britain’s Capital Investment in Individual Colonial and Foreign Countries,” Journal of
the Royal Statistical Society, 74 (Jan. 1911); 176
25
Crabbe (1989). See also Brown (1940).
A Week’s War Havoc, The Annalist, August 3, 1914
27
A Week’s War Havoc, The Annalist, August 3, 1914. See Brown (1940) for details of the crisis in the
international monetary system.
28
Silber (2007a pp. 15-16). See also Brown (1940).
26
14
closed. 29 On July 29th, Vienna, Budapest, Brussels, Antwerp, Berlin and Rome closed their
exchanges. 30 The next day, St. Petersburg, Paris Bourse and Coulisse, and all South American
exchanges closed. 31 The London Stock Exchange closed early on the morning of July 31st. That
same morning in New York, the New York Times announced that the NYSE remained the last
major market open for business. Even in the hour before the market would have opened, the
exchange’s governing board disagreed on whether to close the NYSE. Just prior to the opening,
however, the governing board decided to follow the rest of the world’s major markets and remain
closed. 32 The closure was hotly debated. The NYSE averages had dropped several points on July
30th, but there were far more buy orders than sell orders in place for the following day, which
should have eased concern over further European liquidation. 33 The call money market appeared
stable, with only moderately rising rates (Figure 1)—particularly compared to past panics.
McAdoo however, urged closure. Gold outflows and European liquidation, which threatened the
gold standard and exchange rates, were too great a threat to leave the NYSE open. With the
memory of the Panic of 1907 still fresh, the fear of another liquidity crisis ran high. 34
5.
McAdoo’s policy actions during the NYSE closure
The closure of the NYSE stemmed the outflow of gold to Europe from the US, but it
simultaneously raised the potential for a major liquidity crisis among US banks, for whom sizable
reserves remained locked up in call loans that financed the transactions at the exchange. 35
In
one of his first and most effective actions, he strengthened and expanded the Aldrich-Vreeland
Act, which had been passed in 1908 in response to the preceding year’s great panic. That act
created ‘emergency currency’ that national banks could access in crisis situations. The act had
29
Noble (1915, p. 9).
Noble (1915, p. 9).
31
Noble (1915, p. 9).
32
Noble (1915, p. 9).
33
Silber (2007a pp. 11-13). See also Noble (1915).
34
See Fohlin, Gehrig and Haas (2016) on the liquidity run during the Panic of 1907.
35
Jacobson and Tallman (2015) detail McAdoo’s plans and policy actions during the period of the markets’
closure to safeguard and strengthen U.S. financial markets. See also Sablik (2013) for an overview of the
crisis and responses.
30
15
just been renewed through June of 1915 when the war rumblings began in the Balkans, but the
law did not allow state banks or trusts to access the currency and required specific collateral and
other restrictions. McAdoo’s revisions extended the facility to all banks and trusts and allowed
them to create currency by depositing municipal bonds, commercial paper, or other securities
with a group of local banks. Clearing house loan certificates—also expanded to trusts following
the Panic of 1907—played a supplementary role in mitigating financial panic. 36 This injection of
liquidity, $500 million of which the Treasury made available, allowed banks that faced a sudden
withdrawal of maturing debts to more easily meet demands for cash.
The success of the Aldrich-Vreeland currency injection revolved around its ability to
unfreeze money markets without inciting inflation—at least for the time. Silber (2007a) finds no
signs of excess liquidity arising from the jump in the money supply attributed to emergency
currency over the period August through October of 1914. Interest rates over this period on
“choice” commercial paper rose to an average of 6.40 percent compared with 4.10 over the
previous three-month period, and rates on overnight call loans more than doubled their pre-war
rates but stayed around 6-8 percent for the entire closure (Figure 1). Excess liquidity would have
caused the opposite effect on short-term interest rates. 37
The U.S. had over $500 million in short-term debt repayments maturing the summer of
1914, and the record high Sterling-Dollar exchange rate forced debts to be paid at a premium. 38
New York City, for example, owed over $82 million in debt due in Europe by January 1915, so it
was crucial both to the U.S.’s financial reputation and the debtors themselves that exchange rates
be lowered and that creditors felt assured of payment. 39 McAdoo then coordinated with the
nascent Federal Reserve Board to form a syndicate of banks that would fund $108 million in U.S.
debt payments to European creditors. 40 The organization of the fund itself provided creditors with
36
Jacobson and Tallman (2015).
Silber (2007a p. 84).
38
Crabbe (1989)
39
“New York City Owes $82,000,000 Abroad,” New York Times, August 19, 1914
40
Crabbe (1989)
37
16
the assurances they required, and as a result, only $10 million was actually removed from this
fund. 41
McAdoo eventually solved the issue of rising exchange rates (Sterling to Dollar). His plan
to end the crisis focused on bolstering exports of cotton and wheat, which would, in turn, increase
gold inflows in payment for the goods sold. 42 These gold inflows could then be used to pay off
American debt owed abroad. McAdoo accomplished these goals by first investing in ships to
move the goods to European markets and then restoring the market for foreign bills of exchange
through the bankers. 43 McAdoo’s policy actions arguably eliminated the discount on the dollar
by November 11th, which Silber argues marked a turning point in U.S. financial credibility. 44 By
1915, gold flows had completely reversed, such that the US experienced a net inward gold flow of
$152,413,112 in the first seven months of 1915 compared with a net outflow of gold of
$83,508,822 in the same period a year earlier. 45
It is not clear whether the success of McAdoo’s policies was fully recognized by investors
immediately, and of course the impact on the US of war conditions in Europe could not be
perfectly predicted or assessed, so some uncertainty lingered upon the NYSE’s reopening in
December.
Meanwhile, the Federal Reserve Banks opened on November 16, 1914. A New York Times
article the next day describes the opening as “of favorable financial and business significance.” 46 It
seems the opening of the Federal Reserve Banks encouraged positive sentiment among would-be
investors in U.S. financial markets. Even if the establishment of the Federal Reserve System
offered long-term benefits to financial markets, however, its introduction could have raised some
uncertainty throughout its early months, as investors learned what to expect in the policies of the
new institution. Such a negative effect would appear minor, compared to the overall favorable
41
Crabbe (1989)
Silber, W. L. (2007 pp. 87-88).
43
Silber, W. L. (2007 pp. 87-88).
44
Silber, W. L. (2007 pp. 87-88).
45
Figures quoted from American Exporter, 1915.
42
“New Banks Established Auspiciously—Conditions Improving Steadily,” New York Times, November 17,
1914
46
17
impression of confidence and relief in the new central bank, particularly in light of McAdoo’s
leadership of the new bank, and relative to the ongoing disruptive effects of the war.
6.
New Street & the NYSE Clearing House operations during closure
With the NYSE—and virtually all other major markets—closed, investors sought out alternative
means for trading their securities. The NYSE clearing house offered transaction services in NYSE
listed securities for those willing to trade at or above prices prevailing at the close of the market
on July 30th. An informal market, known as the New Street Market, also appeared on the street
outside the NYSE and allowed investors to trade securities that normally would trade on the NYSE.
New Street provided liquidity services, albeit with wider bid/ask spreads than the NYSE had just
prior to the closure. Silber (2005) found that New Street dominated the NYSE Clearing House
more than 60% of the time, and attracted order flow in response to economic incentives.
Silber (2005) also compared New Street’s average returns with New York Stock Exchange
closing prices from July 30th 1914, and found that New Street was discounted up to 9 percent.
Thus, when the value of securities fell below the prices at which the clearing house would conduct
trade, much of the activity shifted to New Street, where investors could trade at any price. New
Street and the NYSE Clearinghouse provided a level of immediacy for traders willing to pay for it
and thereby absorbed some of the effects of uncertainty during the NYSE closure. The
transaction prices, bid and ask quotations, and trading volumes appeared only to a limited extent
in the press, thereby continuing the general sense of a trading holiday (and thus no need for
alarm about declining asset values) among the public.
7.
Reopening trade at the NYSE
The NYSE reopened for business gradually, and policies were put in place to make the reopening
run smoothly. The incremental reopening further softened the impact of the uncertainty shocks,
spreading the effects over time. On November 11, 1914 the committee on unlisted stocks lifted
restrictions on unlisted stock dealings, an action seen as having, “a favorable indication of an
18
increasing demand for stocks and an early reopening of the stock exchange.” 47 Brokers and
dealers, however, were still encouraged not to disclose information on quotations and
transaction. 48 Sentiment was certainly improving, as a Wall Street Journal article on November 28
indicate3s: “an influential banker describes being the most optimistic he has been since July about
U.S. markets and does not expect heavy liquidation from anyone, besides Germans, who had been
liquidating their holdings for quite a while.” 49
Bonds listed on the NYSE were permitted to trade November 28, and minimum prices were
set by a committee. Minimum prices were set for “select securities” and were set “well below
equilibrium prices.” 50 Minimum prices were changed “from time to time.” These price collars were
not addressed in much detail, but it appears they were put in place to protect against a run on
select bonds. Similar safeguards were put on stocks when most of those issues were allowed to
trade starting December 12. The reaction of media and investors to the renewed trading in bonds
was overwhelmingly positive, and papers such as the New York Times spoke glowingly of the
NYSE’s turnaround in such a short period of time (without directly giving McAdoo’s policies
credit.) according to the Times, “The reopening of the Stock Exchange for bond trading . . . (is)
tangible evidence of the large strides which have been made on the road of recovery from the
depressions and disorganization caused by the outbreak of war.” 51 The same article describes just
how substantial the market turnaround had been in just a few months, “A heavy decline in prices
in the private trading after the Exchange closed was followed by a brisk and extensive recovery . . .
which describes equally well the movement in stocks and in bonds.” Newspapers certainly
reflected a newfound confidence in the NYSE that had been building for some time, grew as bond
trading resumed, and carried into the resumption of stock trading.
When stocks were finally allowed to trade on Saturday, December 12th, many securities
were withheld from trading. The stocks first allowed to trade were described as “not international
Unlisted Stock Dealings Relieved From Restrictions, Wall Street Journal, November 12, 1914
Unlisted Stock Dealings Relieved From Restrictions, Wall Street Journal, November 12, 1914
49
“Optimistic view expressed by an influential banker,” Wall Street Journal, November 28, 1914
50
Noble (1915 pp. 83-84).
51
“The Financial Situation in America and Europe,” Wall Street Journal, November 30, 1914
47
48
19
in character.” 52 The New York Times did not elaborate on the meaning of this designation,
however an article from December 13 explains, “A number of the active international issues were
missing from the Stock Exchange yesterday… but, despite this, the international list was fairly well
represented. In such stocks as St. Paul, Atchison, and Northern Pacific there was no sign at all of
selling pressure.” 53 It seems stocks considered to have a high amount of international investment
were barred from trading in the first day of trading, as a result of McAdoo’s fears of European
liquidation. Some securities with international holding slipped through the cracks, however, and
according to the same New York Times article there was “no sign of selling pressure.” All
remaining stocks resumed trading the following Tuesday, December 15th, but the price floors
remained in place for select securities. Table I sums up the main events to be analyzed.
IV.
Data
I start with the 1914-15 subset of Fohlin’s (2015) data, consisting of all New York Stock Exchange
stocks traded on Fridays from 1911-1925 and augmented the data with daily data covering
7/14/1914 to 7/30/1914 and 12/12/1914 to 12/31/1914. The original weekly data and the extra
daily data come from the stock exchange reports in the New York Times via Proquest. I include all
available information: type of security, closing bid and ask quotes, sales (number of shares), and
the first, last, high and low transaction prices for each day. Extensive error checks flagged cases
violating logical conditions, such as “ask > bid” or “high price greater than or equal to all other
transaction prices,” as well as any missing or zero values, quotes not in eighths, or extreme values
of daily returns, spread measures, and quasi-volatility ((high-low)/last)). For each entry flagged by
the error checker, research assistants reexamined the original NYT stock table entry to determine
whether there was a data entry error, an apparent typographical error in the newspaper (such as
inverted or extraneous digits), or simply an unusual value. I corrected all errors—both manual
entry errors and obvious typos in the original source—but in order to insure integrity and
52
Noble (1915 p. 83).
Stock Trading Opens Saturday, The New York Times, December 8, 1914
53
20
completeness of the data, I kept unusual values for which no obvious error could be found.
Capital stock and par values come from Moody’s and Poor’s manuals.
I include all common and preferred issues in the analysis, and exclude rights, certificates, and a
few miscellaneous issues. I also drop issues whose last price fell below $2.00, since the minimum
tick size was 1/8th, and extremely low prices disproportionately affect the analysis of spreads and
volatility. Table II presents summary statistics.
First, high, low and last represent, respectively, the first transaction price of the day, last
transaction price of the day, high and low prices for each stock. Stocks trading on the NYSE in
1914-15 have an average last price (“last”) of about $70, with a standard deviation of $50. Most
stocks started with a par value of $100 per share, but the significant majority of issues traded
below par. Due to small numbers of unusually high prices, median values tend to fall below mean
values across the variables.
The number of shares traded daily for each stock (‘sales’) also ranged widely over the cross
section and over time (Figure 2): ranging from occasional odd lots as low as a few shares, to as
many as 417,000 shares in a day, and averaging approximately 3,000 shares, with median sales of
500 and a standard deviation of more than 10,000 shares. Daily dollar volume for individual
stocks, the day’s total sales for the stock times its last price, averaged $230,000, but with
substantial cross-sectional variation: standard deviation of just under $923,000 and a range from
a few hundred dollars to over $26 million per day. Daily total sales and dollar volume across all
stocks on the exchange (Figure 3) average 502,000 shares and about $37 million (roughly $8.5
billion in 2014 terms) per day, respectively, with standard deviations of 322,000 shares and $24
million (roughly $5.6 billion in 2014 terms). For comparison, in the past few years daily average
total dollar volume on the NYSE has ranged from $90 to $110 billion. 54
The relative quoted spread is defined as closing ask minus closing bid, divided by the last
(price) all multiplied by 100. The relative half spread, is simply half of the quoted spread and gives
a one-way cost. The relative half spread averages 1.32% across the sample, with a median of
0.53%, a standard deviation of 2.84% and an interquartile range from 0.25% to 1.25% (Figure 4).
54
Trading Volume . . . Think, http://www.cnbc.com/id/48780316, August 24, 2012
21
The Amihud measure is the ratio of the given stock’s daily return, in absolute value, to the stock’s
daily dollar volume. I proxy intraday volatility with a quasi-volatility (QVOL) measure, calculated as
the difference between the high and low transaction prices during the day, as a percentage of the
last price of the day. QVOL averages 1.70 percent with a median of 0.74 percent, standard
deviation of 3.15 percent and an interquartile range from 0 (high=low price) to 2.10 percent
(Figure 5). Market capitalization (MktCap) equals number of shares outstanding times the last
price each day and averages $53.6 million with a standard deviation of $92 million.
V.
Results
A baseline test of the model on the entire data set for 1914 and 1915 yields results consistent with
theory (Table III). 55 Higher price levels, trading volume, and market capitalization bring narrower
spreads, as expected. Spread increase with quasi-volatility, also as expected. Notably, even
controlling for these factors—particularly the volatility in share prices—the weekly trend variable
shows that relative spreads rose over the extended period. Given that the baseline analysis shows
that the NYSE during this period generally conforms to the theoretical expectations, we can infer
that the market in this era behaved very similarly to modern day markets and that we can safely
rely on this model to identify uncertainty shocks.
For each episode detailed previously, I estimate the impact of the uncertainty shock on quoted
spreads, Amihud illiquidity, quasi-volatility, and dollar volume.
I add to the liquidity model an
indicator variable for each uncertainty shock equal to 1 during the treatment period (days
following the event), and 0 during the control period (days or weeks just prior to the event). I
also use a t-test to measure the magnitude and statistical significance of changes in volatility and
average dollar volume between each control and treatment period.
Section II lays out the details of the uncertainty shocks during the period of study. The
precise dating runs as follows (Table I):
55
For analysis of longer-run patterns of NYSE liquidity, see Fohlin (2014).
22
1. The Austrian Ultimatum, the invasion of Serbia, and foreign market closures
The treatment period for the Austrian Ultimatum runs from the issuance of the demands
on July 23, 1914 through July 27th, the day before the invasion of Serbia. 56 The invasion event
starts July 28th and ends on July 30th, the last day of trading before closure. Because the other
major markets began closing the day after the invasion, it is difficult to differentiate between the
effects of the invasion and the effects of the market closures. I use two control periods, one
running from January 1, 1914 until June 27, 1914 and the other including only July 1-22, 1914. I
end the longer period on June 27th, because Archduke Ferdinand’s assassination the next day is
largely accepted as the beginning of visible tensions in Europe. Although I have already argued
that the assassination was a ‘non-event’ for financial markets, I stick to June 27th to maintain
conservative assumptions about when uncertainty began to arise.
Nonetheless, box plots of the
panels of bid-ask spreads and quasi-volatility show that the market remained stable for the first
three weeks of July, following the assassination (Figures 2 and 3).
The regression estimates (Table IV) reject the first half of the hypothesis but confirm rather
dramatically the second part. That is, the Austrian Ultimatum hardly moved illiquidity and
volatility in the NYSE, but the invasion a few days later caused a liquidity and volatility shock in
New York. Clearly, the surge in uncertainty rattled the NYSE with quantitatively large effects
compared to full-period/sample median values: quoted half bid-ask spreads of 0.53%, quasivolatility of 0.74%, and sales of 500. Notably, these effects on market illiquidity control for the
dramatic increase in volatility, which is a driving factor in both measures of market illiquidity
(spreads and Amihud’s price impact measure). The increasing trading volume after the invasion
supports the idea of capital flight as foreign investors repatriated funds and may also suggest
widening gaps in traders’ opinions. The estimated coefficients of the invasion shock increase, as
expected, over the quantiles of relative spreads, with the median impact more than double that of
the 25th percentile and less than half that of the 75th percentile.
56
While the Austrian ambassador reportedly delivered the ultimatum too late (6pm Central European Time)
to be reported the same day in the New York newspapers, we cannot be sure that the news did not make it
to New York before the day’s market close a few hours later. There is no mention of the event in the New
York Times’ financial market report the following day, suggesting that the news did not hit the New York
market until the morning of the 24th.
23
The box plots (Figures 6 and 7) provide visual confirmation of these results and a more
nuanced view of the timing and cross-sectional disparity of the uncertainty shocks. The evidence
here demonstrates that the Austrian Ultimatum in itself, and even Serbia’s reply two days later, did
not hit the US market as an uncertainty shock. However, the plots of spreads show a gradual
climb from the 23rd–most likely before the news could have affected the New York market—
through the 27th. The 28th and 29th show unprecedented spreads, but the most dramatic increase
came on the 30th, three days after Austria invaded Serbia. The impact on volatility is even more
discrepant between the Austrian Ultimatum and the invasion: QVOL remained low until the 27th,
rose sharply on the 28th and 29th, and then spiked on the 30th. The widening of the boxes and
whiskers indicates much greater dispersion in values along with the higher overall levels.
2. Reopening of the NYSE
Next, I test the hypothesis that the exchange closure and McAdoo’s policies to enhance liquidity
throughout the financial system allowed dissipation of the late July uncertainty shocks—despite
ongoing war and upheaval in Europe, a barrage of policies put in place in the fall of 1914, and the
potential for continuing policy changes. Because of the market closure, we can only observe the
impacts following the reopening in December. Thus, I use December 15, 1914 (when all stocks
were allowed to trade) to December 19, 1914 as the treatment period, and I compare against two
different control periods to reflect the dual hypothesis that market quality in December improved
compared to the late July uncertainty shock but not compared to the stable period earlier in the
year. I therefore employ both July 28 to July 30, 1914 and January 1, 1914 to June 27, 1914 as
control periods.
Spreads and volatility declined considerably by the time the market reopened in December
(Figures 8 and 9). Controlling for other factors, the median spread declined by 0.53% after the
NYSE reopened compared to the three days before it closed (Table V), which represents roughly
the total increase that took place in the aftermath of the Austrian Ultimatum. After the first three
days of trading, volatility also dropped by almost the entire amount of its increase in late July.
Trading volume fell off considerably in the early days of the reopening, more than offsetting the
24
increase of the days prior to the closure. Looking more broadly at the latter half of December,
compared to the quiet period in the first half of 1914 (Table VI), the panel regressions show
spreads remained about 0.20% wider after the NYSE reopened, but volatility and trading volume
returned to roughly the same levels.
These results are consistent with the theory, but the magnitude of the remaining uncertainty
effect is certainly smaller than might be expected under the circumstances of the time. The
relatively small effects remaining in December speak to the efficacy of the policy actions in
mitigating uncertainty and encouraging investment and also to the ability of the informal New
Street market and the NYSE clearing house to absorb much of the liquidity and volatility effects
during the closure. Further evidence comes from the call money market, in which rates rose in
the days before the outbreak of the war and then sat at elevated but stable rates of 6-8 percent
for the duration of the closure, before declining steadily back to pre-war levels over the course of
late December and the first half of January (Figure 1).
3. International in Character
In one final test of NYSE interventions surrounding the onset of World War I, I examine the
significance of the “international in character” (IIC) designation by the NYSE governing board at
the reopening of the NYSE. On December 12, 1914, due to fear that Europeans would liquidate
their holdings in certain NYSE issues, the exchange only permitted trading in those stocks
considered NOT “international in character”—meaning that their trades involved primarily
domestic investors. 57 The rest of the stocks entered trade on December 15, 1914. I assess the
importance of this distinction, by comparing the characteristics of IIC issues and not international
in character (NIIC) issues using two approaches and then investigate whether these stocks
responded differently from the rest to the various war-related shocks.
First, robust regressions of size (market capitalization), relative spreads, volatility and trading
volume and including a binary indicator variable for “International” among the independent
57
Noble (1915 pp. 64-89)
25
variables, indicates a few significant differences in baseline characteristics (Table VII).
International stocks show significantly lower volatility and trading volume, but not by huge
magnitudes. While they are larger than average by market capitalization, the difference is not
statistically significant. Importantly, controlling for other characteristics, they traded with
equivalent spreads. 58 Panel probit models that further control for sector, show that none of the
key characteristics predicts designation as “international” over the period (Table VIII).
Tests of the differences between IIC and NIIC stocks during the reopening of the market back
up the notion that these stocks did not need protection from market forces. The new model adds
an “International” indicator variable to each of the event regressions along with the interaction of
“international” with each event indicator, as follows:
𝑆𝑆𝑖𝑖𝑖𝑖=𝑎𝑎0 +𝑎𝑎1 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖𝑖𝑖 +𝑎𝑎2 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖𝑖𝑖 +𝑎𝑎3 𝑞𝑞𝑞𝑞𝑞𝑞𝑞𝑞𝑖𝑖𝑖𝑖 +𝑎𝑎4 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖𝑖𝑖 +𝑎𝑎5 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑖𝑖 +𝑎𝑎6 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑡𝑡 +𝑎𝑎7 International∗Event𝑖𝑖𝑖𝑖 +𝑒𝑒𝑖𝑖𝑖𝑖
The results indicate that when war tensions began in Europe, the average trading volume, volatility
and spreads of IIC stocks did not increase disproportionately more than NIIC stocks (Table IX). In
fact, compared to other stocks, the international stocks showed lower volatility in the last few days
before the closure, further suggesting there was no obvious reason for international stocks were
withheld from trading upon reopening. In fact, when the NYSE reopened, the international stocks
experienced no wider spreads or lower volume compared to non-international stocks. They did
show somewhat less of a reduction in volatility, compared to the rest, however the international
stocks were less volatile overall during the period.
While the contemporary literature suggests these companies were withheld from trading
because they were more reactive to European tensions, the evidence argues to the contrary. The
NYSE’s “international” designation was likely irrelevant, because the relative strength of the NYSE
upon its reopening, and the gradual absorption of the uncertainty shocks during the closure,
safeguarded all stocks from liquidation. The exchange likely did not need to withhold IIC stocks
from trading, as their rapid addition to the list on December 15th suggests. Still, the willingness of
58
The market values of international stock average $2,156,000 greater than the other stocks (roughly $51
million in 2014).
26
the exchange to withhold some stocks from trading demonstrated the governing board’s
willingness to impose market order—a policy that may have rendered itself seemingly
unnecessary merely by its existence.
VI.
Conclusions
This paper sheds new light on a central tenet of financial economics—that markets operate
efficiently by fully incorporating all relevant news into current prices. Most news is well
understood, and price discovery usually works rapidly and smoothly. But some of the most
important news—such as election surprises or political upheaval—is too complex to process
quickly and may prove difficult to even recognize as salient news. This latter problem might arise
if the various signs of a coming shock conflict (like news analysis that presents convincing
opposing views on expectations) or if investors prefer not to believe them, as in the case of an
impending military conflagration.
From an economist’s viewpoint, the global crisis of 1914 offers an ideal laboratory in which to
study the effects of complex news on investor uncertainty. The episode provides a series of
exogenous shocks, natural experiments of sorts, with which to analyze the impact of complex
news on market quality: from the assassination of the Austrian archduke to the Austrian
Ultimatum, to the invasion of Serbia, and ultimately the declaration of war. The assassinations
caused no disruption in the NYSE, and the ultimatum elicited little more response. On the first
count, the lack of reaction is easily understood as rational, given that the Balkans had just been at
war—in a regionally confined manner—in the previous two years and, at the time, political
assassination was not rare. But the fact that the Austrian Ultimatum passed almost unheeded by
the New York market points to a lack of understanding of the gravity of that event; in retrospect,
the most important political shock in a generation or more. Even the invasion of Serbia and war
declaration brought on less reaction than might have been expected. It took another day, and the
closure of major European markets in the last two days of July for the NYSE to react with spikes in
volatility and spreads. Similarly, call money rates remained steady and low until just before the
closure, indicating that short-term money markets remained liquid until the very end.
27
The results also support the hypothesis that policy actions, such as the shutdown of the
NYSE and infusion of ‘emergency’ currency, via the Aldrich-Vreeland Act, stabilized the market and
reduced investor uncertainty, such that volatility declined and spreads narrowed by the time the
NYSE reopened. Uncertainty clearly did not return to the levels of the quiet period of early 1914,
because the ongoing threat of war kept uncertainty levels elevated. This study therefore offers
additional insights into the question of how best to regulate markets in the face of extreme
uncertainty shocks that threaten market order.
From an historical standpoint, the study also contributes to the understanding of this
momentous episode, a century later, improving clarity on the impact of political upheaval and U.S.
economic policy response during the early months of the crisis. The World War I episode marks a
watershed in state capacity, as it justified a shift to large scale government, with high national
debt and taxes, and it coincided with the launching of the Federal Reserve System. It accelerated
the already steady march toward government regulation of the financial system spurred by the
1907 panic and the rising tide of progressive politics.
28
References:
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W. Brown, R. Burdekin, M. Weidenmier, “Volatility in an era of reduced uncertainty: lessons from
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Chisholm, Hugh (1922) The Encyclopedia Britannica Volume 32, (London: The Encyclopedia
Britannica Company, LTD) 574-575.
Crabbe, L. (1989). International Gold Standard and US Monetary Policy from World War I to the
New Deal, The. Fed. Res. Bull., 75, 423.
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Money Market 1905-1915,” Emory University mimeo.
Fohlin, C., Gehrig, T., & M. Haas (2016) “Rumors and Runs in Opaque Markets: Evidence from the
Panic of 1907,” CESifo Working Paper No. 6048 and CEPR Discussion Paper No. DP10497.
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to CRSP,” Emory University mimeo.
29
Fohlin, C., Gehrig, T., & Brünner, T. (2010). Liquidity and Competition in Unregulated Markets: The
New York Stock Exchange before the SEC.
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30
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31
Appendix: Newspaper images following key events
A. Front page of The New York Times on June 29, 1914, the morning after the assassination of
the Austrian Archduke and his wife
B. From page of The New York Times on July 24, 1914, the morning after Austria’s ultimatum
to Serbia
C. Front page of The Washington Times on the evening of July 28, 1914, the day of Austria’s
declaration of war against Serbia.
Tables and Figures:
Figure 1. Interest Rates on Call Loans, daily April 1914-March 1915
High and low interest rates offered on new (overnight) call loans offered in the New York market, primarily
to finance securities transactions.
Source: New York Tribune, daily issues, accessed via The Library of Congress, “Chronicling America”
website.
12.00
10.00
low(%)
high(%)
8.00
6.00
4.00
2.00
0.00
Figure 2. NYSE Individual Share Trading Volume, by Percentile, 1914
Lines show 75th, 50th, and 25th percentile values of total number of shares traded for individual stocks on a
given day.
Source: New York Times (via Proquest), stock exchange reports for each day. See text and Fohlin (2015)
for additional details of the data collection.
4000
3500
3000
p75sales
2500
p50sales
2000
p25sales
1500
1000
500
2Jan14
16Jan14
30Jan14
13Feb14
27Feb14
13Mar14
27Mar14
9Apr14
24Apr14
8May14
22May14
5Jun14
19Jun14
3Jul14
14Jul14
16Jul14
18Jul14
21Jul14
23Jul14
25Jul14
28Jul14
30Jul14
14Dec14
16Dec14
18Dec14
21Dec14
23Dec14
26Dec14
29Dec14
0
Figure 3. NYSE Aggregate Trading Volume (number of shares), 1914
Total number of shares traded is the sum of all shares traded on individual stocks on a given day.
Source: New York Times (via Proquest), stock exchange reports for each day. See text and Fohlin (2015)
for additional details of the data collection.
1400000
1200000
1000000
800000
600000
400000
200000
2Jan14
16Jan14
30Jan14
13Feb14
27Feb14
13Mar14
27Mar14
9Apr14
24Apr14
8May14
22May14
5Jun14
19Jun14
3Jul14
14Jul14
16Jul14
18Jul14
21Jul14
23Jul14
25Jul14
28Jul14
30Jul14
14Dec14
16Dec14
18Dec14
21Dec14
23Dec14
26Dec14
29Dec14
0
Figure 4. Relative Bid-Ask Spread (%) of Individual NYSE Stocks, by Percentile, 1914
Lines show 75th, 50th, and 25th percentile values of relative half bid-ask spread for individual stocks on a
given day. Relative half spread is ½(Ask-Bid)/Last price in percentage terms.
Source: New York Times (via Proquest), stock exchange reports for each day. See text and Fohlin (2015)
for additional details of the data collection.
4
3.5
3
2.5
2
p75halfspread
p50halfspread
p25halfspread
1.5
1
0.5
2Jan14
16Jan14
30Jan14
13Feb14
27Feb14
13Mar14
27Mar14
9Apr14
24Apr14
8May14
22May14
5Jun14
19Jun14
3Jul14
14Jul14
16Jul14
18Jul14
21Jul14
23Jul14
25Jul14
28Jul14
30Jul14
14Dec14
16Dec14
18Dec14
21Dec14
23Dec14
26Dec14
29Dec14
0
Figure 5. Quasi-Volatility (%) of Individual NYSE Stocks, by Percentile, 1914
Lines show 75th, 50th, and 25th percentile values of quasi-volatility of shares traded for individual stocks on
a given day. Quasi-volatility is (High-Low)/Last, all transaction prices for the given stock.
Source: New York Times (via Proquest), stock exchange reports for each day. See text and Fohlin (2015)
for additional details of the data collection.
12
10
p75vol
p50vol
p25vol
8
6
4
2
29Dec14
26Dec14
23Dec14
21Dec14
18Dec14
16Dec14
14Dec14
30Jul14
28Jul14
25Jul14
23Jul14
21Jul14
18Jul14
16Jul14
14Jul14
3Jul14
5Jun14
19Jun14
8May14
22May14
9Apr14
24Apr14
27Mar14
27Feb14
13Mar14
13Feb14
30Jan14
16Jan14
2Jan14
0
Figure 6. Relative Bid-Ask Spreads of NYSE Stocks, January-July 1914
Box plot of half spread of the cross section of individual stocks traded on a given day.
Source: New York Times (via Proquest), stock exchange reports for each day. See text and Fohlin (2015)
for additional details of the data collection.
0
Relative Spread
2
4
6
8
Spreads
7-30-14
7-29-14
7-28-14
7-27-14
7-25-14
7-24-14
7-23-14
7-22-14
7-21-14
7-20-14
7-18-14
7-17-14
7-16-14
7-15-14
7-14-14
7-10-14
7-3-14
6-26-14
6-19-14
6-12-14
6-5-14
5-29-14
5-22-14
5-15-14
5-8-14
5-1-14
4-24-14
4-17-14
4-9-14
4-3-14
3-27-14
3-20-14
3-13-14
3-6-14
2-27-14
2-20-14
2-13-14
2-6-14
1-30-14
1-23-14
1-16-14
1-9-14
1-2-14
excludes outside values
Figure 7. Quasi-Volatility of NYSE Stocks, January-July 1914
Box plot of quasi-volatility (high-low/last price) of the cross section of individual stocks traded on a given
day.
Source: New York Times (via Proquest), stock exchange reports for each day. See text and Fohlin (2015)
for additional details of the data collection.
0
5
qvol
10
15
20
Volatility
7-30-14
7-29-14
7-28-14
7-27-14
7-25-14
7-24-14
7-23-14
7-22-14
7-21-14
7-20-14
7-18-14
7-17-14
7-16-14
7-15-14
7-14-14
7-10-14
7-3-14
6-26-14
6-19-14
6-12-14
6-5-14
5-29-14
5-22-14
5-15-14
5-8-14
5-1-14
4-24-14
4-17-14
4-9-14
4-3-14
3-27-14
3-20-14
3-13-14
3-6-14
2-27-14
2-20-14
2-13-14
2-6-14
1-30-14
1-23-14
1-16-14
1-9-14
1-2-14
excludes outside values
Figure 8. Relative Bid-Ask Spreads of NYSE Stocks, July-December 1914
Box plot of half spread of the cross section of individual stocks traded on a given day.
Source: New York Times (via Proquest), stock exchange reports for each day. See text and Fohlin (2015)
for additional details of the data collection.
0
2
Relative Spread
4
6
8
Spreads
12-31-14
12-29-14
12-28-14
12-26-14
12-24-14
12-23-14
12-22-14
12-21-14
12-19-14
12-18-14
12-17-14
12-16-14
12-15-14
12-14-14
12-12-14
7-30-14
7-29-14
7-28-14
7-27-14
7-25-14
7-24-14
7-23-14
7-22-14
7-21-14
7-20-14
7-18-14
7-17-14
7-16-14
7-15-14
7-14-14
7-10-14
7-3-14
excludes outside values
Figure 9. Quasi-Volatility of NYSE Stocks, July-December 1914
Box plot of quasi-volatility (high-low/last price) of the cross section of individual stocks traded on a given
day.
Source: New York Times (via Proquest), stock exchange reports for each day. See text and Fohlin (2015)
for additional details of the data collection.
0
5
qvol
10
15
20
volatility
12-31-14
12-29-14
12-28-14
12-26-14
12-24-14
12-23-14
12-22-14
12-21-14
12-19-14
12-18-14
12-17-14
12-16-14
12-15-14
12-14-14
12-12-14
7-30-14
7-29-14
7-28-14
7-27-14
7-25-14
7-24-14
7-23-14
7-22-14
7-21-14
7-20-14
7-18-14
7-17-14
7-16-14
7-15-14
7-14-14
7-10-14
7-3-14
excludes outside values
Table I. Event Timeline and Time Period Comparisons
Event
Event Period
Control Period
Austrian Ultimatum
7/23/1914 to 7/27/1914
7/01/1914-7/22/1914
Austrian Invasion and
Foreign Market Closures
7/28/1914 to 7/30/1914
7/01/1914-7/22/1914
NYSE Reopening vs. Directly
Before Closure
12/15/1914 to 12/19/1914
7/28/1914 to 7/30/1914
NYSE Reopening vs. Early
1914
12/15/1914 to 12/29/1914
1/1/1914 to 6/27/1914
Table II. Summary Statistics
Statistics summarized over 17,945 stock-day observations, from January 1914-December 1915. Sales is
the number of shares traded for a given day. Dollar volume is number of shares sold (“sales”) times the
day’s last transaction price for a given stock (“last”). Relative half spread is ½(ask-bid)/last in percentage
terms. Quasi-volatility is (high-low)/last. Market capitalization is number of shares outstanding times
“last” for each day.
Source: Calculations based on data from Fohlin (2015) and New York Times (via Proquest historical
collection).
Variable
Sales (num.)
Total sales
Dollar volume
Total dollar
volume
Last price
Relative half
spread
Quasivolatility
Market
Capitalization
p25
Mean
p50
p75
sd
130
3,061
500
1,900
10,695
248,546
502,306.7
444,027
703,898
322,327
8,700
230,402.2
25,000
110,250
922,749
1.86E+07
3.67E+07
3.37E+07
5.28E+07
2.36E+07
30
70.13
62.75
102
50.18
0.248
1.326
0.529
1.25
2.84
0
1.702
0.735
2.105
3.15
6,075,000
5.36E+07
1.62E+07
4.90E+07
9.28E+07
Table III. Baseline Model: Quoted Bid-Ask Spreads, Weekly (Fridays), 1914-15
Sales is the number of shares traded. Quasi-volatility is (high-low)/last (in percent). Market
capitalization is number of shares outstanding*last. Regression coefficients marked with an asterisk are
statistically significant (p < .05) and parentheses represent standard errors. Estimates result from a
quantile (median) regression model implemented in Stata.
Source: Authors’ calculations. Data from Fohlin (2015) and New York Times (via Proquest historical
collection).
Independent Variables
Quantile regression
Ln(closing price)
Ln(sales)
Quasi-volatility
Ln(market cap)
Outcome Variables
Relative Spread
-0.310***
-0.314***
(0.06)
(0.06)
-0.161***
-0.164***
(0.0195)
(0.017)
0.0309***
0.0305***
(0.01)
(0.005)
-0.089***
-0.085***
(0.02)
(0.02)
Trend
0.001**
# of week 1-104
(0.000)
Intercept
4.453***
4.362***
(0.363)
(0.359)
Observations
17,760
17,760
Adjusted R-Squared
0.209
0.209
Table IV. Impact of July 1914 Events on NYSE Liquidity and Volatility
Sales is the number of shares traded. Quasi-volatility is (high-low)/last (in percent). Regression coefficients
marked with an asterisk are statistically significant (*** p<0.01, ** p<0.05, * p<0.1) and Robust p-values are in
parentheses. Estimates result from a quantile (median) regression model implemented in Stata.
Source: Authors’ calculations. Data from Fohlin (2015) and New York Times (via Proquest historical collection).
quoted spread
VARIABLES
percentile
Amihud
qvol
50
50
25
50
75
-0.28***
(0.00)
-0.11***
(0.00)
0.02**
(0.02)
0.05
(0.19)
0.20***
(0.00)
2.20***
(0.00)
-0.54***
(2.62e-06)
-0.19***
(0)
0.01
(0.31)
0.11
(0.13)
0.45***
(0.007)
4.11***
(0.00)
-1.00***
(4.45e-08)
-0.28***
(1.60e-10)
0.02
(0.23)
0.07
(0.59)
1.12***
(0.005)
7.26***
(0.00)
0.0004***
(4.88e-05)
-0.00047***
(4.40e-09)
6.07e-05***
(1.48e-06)
0.0002
(0.29)
0.0003***
(0.006)
0.002***
(1.25e-07)
-0.22
(0.23)
0.79***
(0.007)
6.22***
(0.00)
0.12*
(0.06)
2.93***
(0.00)
0.65***
(0.0007)
Sector fixed effects
Sector x event
fixed effects
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
yes
no
Observations
R-squared
1,922
0.173
1,922
0.187
1,922
0.203
1,062
0.025
1,936
0.088
1,936
0.179
Ln(last price)
Ln(sales)
Quasi-volatility
July23-27
July28-30
Constant
50
Logsales
Table V. NYSE Liquidity and Volatility after NYSE Reopening, Compared to Late July Crisis Period
Sales is the number of shares traded. Quasi-volatility is (high-low)/last (in percent). Regression
coefficients marked with asterisks are statistically significant as follows: *** p<0.01, ** p<0.05, * p<0.1.
Robust p-values are in parentheses. Estimates result from a quantile (median) regression model
implemented in Stata. All models include sector fixed effects and (sector x event) fixed effects.
Source: Authors’ calculations. Data from Fohlin (2015) and New York Times (via Proquest historical
collection).
VARIABLES
Relative spread
25
50
-0.41***
-0.72***
75
-1.34***
Amihud
50
0.0006***
(0.00)
-0.20***
(0.00)
0.03***
(0.00)
(0.00)
-0.33***
(0.00)
0.03
(0.24)
(0.00)
-0.43***
(0.00)
0.03
(0.12)
(0.00)
-0.001***
(0.00)
0.0001***
(0.00)
Dec. 15-19 v.
Jul 28-30
-0.18**
(0.02)
-0.53***
(0.00)
-1.47***
(0.00)
Constant
3.65***
(0.00)
909
0.22
6.48***
(0.00)
909
0.24
11.26***
(0.00)
909
0.24
Ln(last price)
Ln(sales)
Quasi-volatility
Observations
R-squared
Logsales
50
qvol
50
-0.001***
(0.00)
-1.01***
(0.002)
-2.29***
(0.00)
0.004***
(0.00)
734
0.02
7.00***
(0.00)
937
0.13
2.94***
(0.00)
937
0.13
Table VI. Liquidity and Volatility after NYSE Reopening, Compared to First Half of 1914
Control period is January 1, 1914 to June 27, 1914, and treatment period is from December 15, 1914 to
December 29, 1914. Regression coefficients marked with an asterisk are statistically significant (p < .05)
and parentheses represent standard errors. Estimates result from a quantile (median) regression model
implemented in Stata. Quasi-volatility is (high-low)/last (in percent). Market capitalization is number of
shares outstanding*last.
Source: Authors’ calculations. Data from Fohlin (2015) and New York Times (via Proquest historical
collection).
Independent Variables
Outcome
Variables
Quasivolatility
Sales
0.20***
-0.03
0.00
(0.04)
(0.11)
(28.21)
4.484***
0.399***
300***
(0.46)
(0.06)
(34.61)
4,483
4,573
4,573
Spread
Ln(last price)
-0.25***
(0.08)
Ln(sales)
-0.14***
(0.03)
Intra-day quasi-volatility
0.01*
(0.007)
Ln(market capitalization)
-0.12***
(0.03)
December 15-29 v. January 1 – June 27,
1914
Intercept
Observations
Table VII. “International in Character” Securities Comparative Characteristics
Regression coefficients marked with an asterisk are statistically significant (p < .05) and parentheses
represent standard errors. Estimates result from a quantile (median) regression model implemented in
Stata. Quasi-volatility is (high-low)/last (in percent). Market capitalization is number of shares
outstanding*last. International indicates stocks denotes as “International in Character” by the NYSE.
Source: Authors’ calculations. Data from Fohlin (2015) and New York Times (via Proquest historical
collection).
Independent
Variables
Outcome
Variables
Robust Regression
Spread
Ln(last price)
-0.24***
(0.04)
Ln(sales)
-0.15***
(0.01)
Intra-day quasivolatility
0.02***
(0.004)
Ln(market
capitalization)
-0.07***
(0.02)
International
Market Cap
(thousands)
qvol
Total sales
0.06
862,956
-0.67***
-434.7***
(0.04)
(1.128e+06)
(0.21)
(88.80)
3.80***
1.443e+07***
2.38***
1,046***
(0.22)
(756,938)
(0.14)
(59.57)
Observations
809
820
820
820
Adjusted R^2
0.391
0.001
0.013
0.028
Intercept
Table VIII. “International in Character” Securities Comparative Characteristics
Quasi-volatility is (high-low)/last (in percent). Market capitalization is number of shares outstanding*last.
International indicates stocks denotes as “International in Character” by the NYSE. Models include sector
fixed effects. Robust p-values are in parentheses (*** p<0.01, ** p<0.05, *p<0.1).
Source: Authors’ calculations. Data from Fohlin (2015) and New York Times (via Proquest historical
collection).
VARIABLES
Relative half spread
Pooled
probit
Panel
probit
0.0229*
(0.0747)
-0.0313
(0.546)
0.503***
(3.86e-05)
0.372
(0.287)
Ln(sales)
-0.0343
(0.470)
-0.112
(0.505)
Quasi-volatility
0.0163
(0.183)
Ln(last price)
Market capitalization
-4.51e-10
(0.733)
0.0144
(0.711)
-5.67e10
(0.877)
Constant
-2.015***
(7.31e-05)
-0.915
(0.472)
16,065
16,065
Observations
Table IX. International in Character Stocks
The first three columns test the effect of breaks at the Austrian Ultimatum (July 23-27) and Austrian
invasion of Serbia and subsequent market closures in Europe (July 28-30) versus the rest of July 1914. The
latter three columns test for a break at the reopening of the exchange compared to the last three days
before the closure (Dec 15-19 v. July 28-30). Quasi-volatility is (high-low)/last (in percent). Market
capitalization is number of shares outstanding*last. International indicates stocks denotes as
“International in Character” by the NYSE.
Source: Authors’ calculations. Data from Fohlin (2015) and New York Times (via Proquest historical
collection).
VARIABLES
Ln(Last price)
Ln(Sales)
Quasi-volatility
Austrian Ultimatum and Invasion
(1)
(2)
(3)
Relative
spread
qvol
Logsales
-0.52***
(1.42e-05)
-0.71***
(0.00)
-0.19***
(0.00)
-0.32***
(0.00)
0.01
(0.17)
0.02***
(0.00)
Event (1)
0.14***
(0.01)
0.10
(0.28)
-0.00
(1.00)
Event (2)
0.72***
(2.96e-09)
3.42***
(0.00)
0.92***
(1.10e-08)
International
0.10
(0.27)
-0.25
(0.24)
International * event
-0.013
(0.87)
International * event 2
Constant
R-squared
Observations
Reopening of the NYSE
(4)
(5)
(6)
Relative
spread
qvol
Logsales
-0.77***
(0.00)
-3.39***
(0.00)
-1.14***
(3.66e-10)
-0.29
(0.17)
-0.08
(0.54)
-1.85**
(0.02)
-0.22
(0.53)
0.13
(0.44)
0.29
(0.17)
0.15
(0.29)
1.72**
(0.02)
0.16
(0.62)
-0.11
(0.46)
3.87***
(7.93e-11)
-1.60***
(0.004)
0.59***
(3.61e-09)
0.06
(0.84)
5.99***
(0.00)
6.407***
(0.00)
4.01***
(0.00)
6.91***
(0.00)
0.198
1,922
0.174
1,936
0.043
1,936
0.229
909
0.108
937
0.088
937