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Financial market liquidity, returns and market growth: evidence from Bolsa and Börse, 1902–1925

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  • Moore, Lyndon

Abstract

The article is based on a unique data set of securities traded on the Madrid Bolsa and the Zurich Börse between 1902 and 1925. We examine the pricing of liquidity and demonstrate that the liquidity level of securities was an important determinant of cross-sectional returns. Factors that are usually found important in contemporary markets, such as securities' sensitivity to market-wide liquidity shocks and market movements, turn out to have been irrelevant in the early twentieth century. In addition, the illiquidity of the Madrid market appears to have modestly slowed capital raising there. Our results suggest that market liquidity was an important determinant of the growth and development of financial markets.

Suggested Citation

  • Moore, Lyndon, 2010. "Financial market liquidity, returns and market growth: evidence from Bolsa and Börse, 1902–1925," Financial History Review, Cambridge University Press, vol. 17(1), pages 73-98, April.
    • Handle: RePEc:cup:fihrev:v:17:y:2010:i:01:p:73-98_00
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    Cited by:

    1. Òscar Jordà & Katharina Knoll & Dmitry Kuvshinov & Moritz Schularick & Alan M Taylor, 2019. "The Rate of Return on Everything, 1870–2015," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(3), pages 1225-1298.
    2. Waldenström, Daniel, 2021. "Wealth and History: An Update," Working Paper Series 1411, Research Institute of Industrial Economics.
    3. Kuvshinov, Dmitry & Zimmermann, Kaspar, 2020. "The Big Bang: Stock Market Capitalization in the Long Run," CEPR Discussion Papers 14468, C.E.P.R. Discussion Papers.
    4. Daniel Waldenström, 2021. "Wealth and History: An Update," CESifo Working Paper Series 9366, CESifo.
    5. Annaert, Jan & Mensah, Lord, 2014. "Cross-sectional predictability of stock returns, evidence from the 19th century Brussels Stock Exchange (1873–1914)," Explorations in Economic History, Elsevier, vol. 52(C), pages 22-43.
    6. Gareth Campbell & John D. Turner & Qing Ye, 2018. "The liquidity of the London capital markets, 1825–70†," Economic History Review, Economic History Society, vol. 71(3), pages 823-852, August.

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