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Did nordic countries recognize the gathering storm of World War II? Evidence from the bond markets

  • Waldenström, Daniel
  • Frey, Bruno S.

This paper analyzes and compares different ways of assessing how people perceived impending threats of war in the past. Conventional Nordic historiography of World War II claims there were few, if any, people in the Nordic countries who perceived a significantly increased threat of war between 1938 and early 1940. At the same time, historical methods face problems when it comes to capturing the often tacitly held beliefs of a large number of people in the past. In this paper, we analyze these assessments by looking at sudden shifts in sovereign debt yields and spreads in the Nordic bond markets at that time. Our results suggest that Nordic contemporaries indeed perceived significant war risk increases around the time of major war-related geopolitical events. While these findings question some--but not all--of standard Nordic World War II historiography, they also demonstrate the value of analyzing historical market prices to reassess the often tacitly held views and opinions of large groups of people in the past.

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Article provided by Elsevier in its journal Explorations in Economic History.

Volume (Year): 45 (2008)
Issue (Month): 2 (April)
Pages: 107-126

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Handle: RePEc:eee:exehis:v:45:y:2008:i:2:p:107-126
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622830

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  1. Frey, Bruno S & Kucher, Marcel, 2001. "Wars and Markets: How Bond Values Reflect the Second World War," Economica, London School of Economics and Political Science, vol. 68(271), pages 317-333, August.
  2. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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  4. Rigobon, Roberto & Sack, Brian, 2005. "The effects of war risk on US financial markets," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1769-1789, July.
  5. Frey, Bruno S. & Kucher, Marcel, 2000. "History as Reflected in Capital Markets: The Case of World War II," The Journal of Economic History, Cambridge University Press, vol. 60(02), pages 468-496, June.
  6. Frey, Bruno S. & Kucher, Marcel, 2000. "History as Reflected in Capital Markets: The Case of World War II," The Journal of Economic History, Cambridge University Press, vol. 60(02), pages 468-496, June.
  7. Niall Ferguson, 2006. "Political risk and the international bond market between the 1848 revolution and the outbreak of the First World War -super-1," Economic History Review, Economic History Society, vol. 59(1), pages 70-112, 02.
  8. Merrick Jr., John J., 2001. "Crisis dynamics of implied default recovery ratios: Evidence from Russia and Argentina," Journal of Banking & Finance, Elsevier, vol. 25(10), pages 1921-1939, October.
  9. Kristen L. Willard & Timothy W. Guinnane & Harvey S. Rosen, 1995. "Turning Points in the Civil War: Views from the Greenback Market," NBER Working Papers 5381, National Bureau of Economic Research, Inc.
  10. Brown, William O, Jr & Burdekin, Richard C K, 2002. "German Debt Traded in London during the Second World War: A British Perspective on Hitler," Economica, London School of Economics and Political Science, vol. 69(276), pages 655-69, November.
  11. BROWN Jr., WILLIAM O. & BURDEKIN, RICHARD C. K., 2000. "Turning Points in the U.S. Civil War: A British Perspective," The Journal of Economic History, Cambridge University Press, vol. 60(01), pages 216-231, March.
  12. Paye, Bradley S. & Timmermann, Allan, 2006. "Instability of return prediction models," Journal of Empirical Finance, Elsevier, vol. 13(3), pages 274-315, June.
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