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“High & Dry†: The Liquidity and Credit of Colonial and Foreign Government Debt and the London Stock Exchange (1880–1910)

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  • Chavaz, Matthieu
  • Flandreau, Marc

Abstract

We gather a new database to conduct the first historically informed study of the importance of liquidity and credit for government bonds between 1880 and 1910. We argue that colonial and sovereign debt markets were segmented owing to differences in underlying information asymmetries. The result was heterogeneous pricing of colonial and sovereign debt, and different market microstructures and clienteles, themselves influenced by political, institutional, and financial arrangements. We find that sovereign spreads mainly reflected credit risks, while colonial spreads mainly reflected liquidity risks. Liquidity premia were economically large and significant, contributing between 10 percent and 39 percent of colonial spreads. These findings help understanding why the seemingly dry subject of colonial illiquidity inspired passionate disputes and ground-breaking reforms of financial imperial institutions.

Suggested Citation

  • Chavaz, Matthieu & Flandreau, Marc, 2017. "“High & Dry†: The Liquidity and Credit of Colonial and Foreign Government Debt and the London Stock Exchange (1880–1910)," The Journal of Economic History, Cambridge University Press, vol. 77(3), pages 653-691, September.
    • Handle: RePEc:cup:jechis:v:77:y:2017:i:03:p:653-691_00
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    Cited by:

    1. Jopp, Tobias A., 2020. "The determinants of sovereign bond liquidity during WWI," Economics Letters, Elsevier, vol. 196(C).
    2. van Hombeeck, Carlos Eduardo, 2020. "An exorbitant privilege in the first age of international financial integration?," Journal of International Money and Finance, Elsevier, vol. 101(C).
    3. Josefin Meyer & Carmen M Reinhart & Christoph Trebesch, 2022. "Sovereign Bonds Since Waterloo," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(3), pages 1615-1680.
    4. Monnet, Eric, 2019. "Interest rates," CEPR Discussion Papers 13896, C.E.P.R. Discussion Papers.
    5. Pierre-Cyrille Hautcoeur & Amir Rezaee & Angelo Riva, 2018. "Competition among Securities Markets," Working Papers halshs-01863942, HAL.
    6. Pierre-Cyrille Hautcoeur & Amir Rezaee & Angelo Riva, 2023. "Competition between securities markets: stock exchange industry regulation in the Paris financial center at the turn of the twentieth century," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 17(2), pages 261-299, May.
    7. Tunçer, Ali Coşkun & Weller, Leonardo, 2022. "Democracy, autocracy, and sovereign debt: How polity influenced country risk on the peripheries of the global economy, 1870–1913," Explorations in Economic History, Elsevier, vol. 85(C).

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