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The Boats That Did Not Sail: Asset Price Volatility in a Natural Experiment

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  • PETER KOUDIJS

Abstract

What explains short‐term fluctuations of stock prices? This paper exploits a natural experiment from the 18 century in which information flows were regularly interrupted for exogenous reasons. English shares were traded on the Amsterdam exchange and news came in on sailboats that were often delayed because of adverse weather conditions. The paper documents that prices responded strongly to boat arrivals, but there was considerable volatility in the absence of news. The evidence suggests that this was largely the result of the revelation of (long‐lived) private information and the (transitory) impact of uninformed liquidity trades on intermediaries' risk premia.

Suggested Citation

  • Peter Koudijs, 2016. "The Boats That Did Not Sail: Asset Price Volatility in a Natural Experiment," Journal of Finance, American Finance Association, vol. 71(3), pages 1185-1226, June.
    • Handle: RePEc:bla:jfinan:v:71:y:2016:i:3:p:1185-1226
    DOI: 10.1111/jofi.12312
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