Advance Contracts for the Sale of Wool in Medieval England; An Undeveloped and Inefficient Market?
AbstractWhile it is commonly believed that derivative instruments are a recent invention, we document the existence of forward contracts for the sale of wool in medieval England around 700 years ago. The contracts were generally entered into by English monasteries, who frequently sold their wool for up to twenty years in advance to mostly foreign and particularly Italian merchants. Employing a unique source of data collected by hand from the historical records, we determine the interest rates implied in these transactions and we also examine the efficiency of the forward and spot markets. The calculated interest rates average around 20%, in accordance with available information concerning the interest rates used in other types of transactions at that time. Perhaps surprisingly, we also find little evidence of informational inefficiencies in these markets.
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Bibliographic InfoPaper provided by Henley Business School, Reading University in its series ICMA Centre Discussion Papers in Finance with number icma-dp2005-01.
Length: 25 Pages
Date of creation: Feb 2005
Date of revision: Nov 2005
Publication status: Published in Journal of Banking and Finance 31:2, 2007, 361-380.
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Web page: http://www.henley.reading.ac.uk/
More information through EDIRC
Wood market; forward contracts; market efficinecy; Medieval England; Interest rates;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
- N53 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - Europe: Pre-1913
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