History as Reflected in Capital Markets: The Case of World War II

Historical events are reflected in asset prices. Looking at government bond prices of five European countries traded on the Swiss stock exchange during WWII provides a useful way of interpreting the importance attributed to various war events. We direct our attention to value changes in government bonds of five different nations: On the side of the Axis, Germany and Austria; on the side of the Allies, France; and the two neutral countries Belgium and Switzerland. The econometric analysis reveals that some events that are generally considered crucial are clearly reflected in government bond prices of the countries considered. This holds, in particular, for the official outbreak of the war in July to September 1939 (which sent down the government bond values not only of Austria, Belgium and France but also of Germany) and for losses and gains of national sovereignty. When Austria lost its independence and became part of "Grossdeutschland" the value of its government bonds fell by 46%. When it regained its nationhood in the Potsdam Conference Austria's government bonds rose by 12%. Similarly, when Belgium and France were defeated and occupied by the German forces in the "Blitzkrieg" of May 1940, the government bond values fell by not less than 35% and 31%, respectively. On the other hand, some events to which historians attach great attention are not reflected in bond prices at all: The most prominent example is the German capitulation in 1945. The analysis of financial markets is certainly no substitute to the traditional inquiries undertaken by historians. But it is a challenging complementary method to evaluate particular sentiments existing at a given moment of time.