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Share Portfolios and Risk Management in the Early Years of Financial Capitalism: London 1690-1730

  • Carlos, Ann M.
  • Fletcher, Erin
  • Neal, Larry

The dramatic expansion of public and private financial markets in the aftermath of the Glorious Revolution has received extensive attention. Despite interest in the operation of the capital market, much less is known about how ordinary individual investors managed risk within this framework. Using a newly constructed data set of share ownership for each company listed in the financial press of the day, we reconstruct individual portfolio holdings for every investor in these companies. We examine individual portfolio holdings first for the decade after the Glorious Revolution and then for the years around the South Sea Bubble of 1720. We also examine holdings over time. Despite a fivefold increase in the number of unique individuals in the market between the 1690s and the 1720s, we find that in each period roughly eighty per cent of those active in the equity market owned shares in only one company, even though most shareholders had the capacity or wealth to diversity their share portfolios. We also find some continuity in the market with forty per cent of those who owned stock in 1690 holding stock two decades later. This level of stock market activity suggests that individuals were diversifying against idiosyncratic liquidity risk. Overall, however, there is limited evidence that individuals were using their financial portfolios to increase return or reduce risk or to protect themselves against diversifiable shocks. Clearly some part of this behaviour can be explained by low levels of financial literacy, for many, however, company specific voting rules with their attendant effects on firm governance drove market activity.

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Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2012-12.

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Length: 51, 13 p.
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:hit:hitcei:2012-12
Note: September 2012
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  1. Paul Harrison, 2001. "Rational Equity Valuation at the Time of the South Sea Bubble," History of Political Economy, Duke University Press, vol. 33(2), pages 269-281, Summer.
  2. Carlos, Ann M. & Key, Jennifer & Dupree, Jill L., 1998. "Learning and the Creation of Stock-Market Institutions: Evidence from the Royal African and Hudson's Bay Companies, 1670–1700," The Journal of Economic History, Cambridge University Press, vol. 58(02), pages 318-344, June.
  3. Neal, Larry & Quinn, Stephen, 2001. "Networks of information, markets, and institutions in the rise of London as a financial centre, 1660 1720," Financial History Review, Cambridge University Press, vol. 8(01), pages 7-26, April.
  4. Lindert, Peter H, 1986. "Unequal English Wealth since 1670," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1127-62, December.
  5. Carlos, Ann M. & Neal, Larry, 2004. "Women investors in early capital markets, 1720 1725," Financial History Review, Cambridge University Press, vol. 11(02), pages 197-224, October.
  6. Grassby,Richard, 1995. "The Business Community of Seventeenth-Century England," Cambridge Books, Cambridge University Press, number 9780521434508.
  7. Quinn, Stephen, 2001. "The Glorious Revolution'S Effect On English Private Finance: A Microhistory, 1680 1705," The Journal of Economic History, Cambridge University Press, vol. 61(03), pages 593-615, September.
  8. Carlos, Ann M. & Neal, Larry, 2011. "Amsterdam and London as financial centers in the eighteenth century," Financial History Review, Cambridge University Press, vol. 18(01), pages 21-46, April.
  9. Paul Harrison, 2004. "What Can We Learn for Today from 300-Year-Old Writings about Stock Markets?," History of Political Economy, Duke University Press, vol. 36(4), pages 667-688, Winter.
  10. Lusardi, Annamaria & Mitchell, Olivia S., 2011. "Financial literacy around the world: an overview," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(04), pages 497-508, October.
  11. Natasha Glaisyer, 2007. "Calculating credibility: print culture, trust and economic figures in early eighteenth-century England -super-1," Economic History Review, Economic History Society, vol. 60(4), pages 685-711, November.
  12. Lindert, Peter H., 1980. "English Occupations, 1670–1811," The Journal of Economic History, Cambridge University Press, vol. 40(04), pages 685-712, December.
  13. Carlos, Ann M. & Moyen, Nathalie & Hill, Jonathan, 2002. "Royal African Company Share Prices during the South Sea Bubble," Explorations in Economic History, Elsevier, vol. 39(1), pages 61-87, January.
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