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Capital Structure, Seniority, and Risk Premia: Evidence from the London Stock Exchange, 1870–1929

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  • William N. Goetzmann
  • K. Geert Rouwenhorst

Abstract

We use security-level data from the Investors Monthly Manual (IMM) to construct capital-weighted return indexes for the London Stock Exchange over the period 1870–1929. We find a significant and persistent equity risk premium of 3.7% over commercial paper and 4.5% over long-term government bonds, with significant co-movement with GDP growth. Returns decline monotonically with claim seniority: common stocks earn more than preferred shares, which earn more than corporate bonds. Both equity risk premia are highly significant, and the rolling 10-year return spread for stocks minus bonds is positive for every interval in the 60-year sample period.

Suggested Citation

  • William N. Goetzmann & K. Geert Rouwenhorst, 2026. "Capital Structure, Seniority, and Risk Premia: Evidence from the London Stock Exchange, 1870–1929," NBER Working Papers 34899, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34899
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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