Was the Emergence of the International Gold Standard Expected? Melodramatic Evidence from Indian Government Securities

The emergence of the gold standard has for a long time been viewed as inevitable. Fluctuations of the gold-silver exchange rate in world markets were accused to lead to brutal and unsustainable switches of bimetallic countries’ money supplies. However, more recent work has shown that the option character of bimetallism provided a stabilizing feedback loop. Using original data, this paper provides support to the new view. Using quotation prices for Indian Government bonds, we analyze agents’ expectations between 1860 and 1890. The intuition is that the spread between gold and silver bonds issued by the same entity (India) and backed by a credible agent (Britain) is a “pure” measure of the silver risk. The analysis shows that up until 1874 markets were expecting bimetallism to last. It is only after this date that markets gradually started requiring a premium to hold silver bonds indicating their belief that gold would eventually become the only metallic standard.Exchange rate regime, gold standard, bimetallism, credibility, silver risk

War, Inflation, Monetary Reform and the Art Market

During World War II, the art market experienced a massive boom in occupied countries. The discretion, the inflation proof character, the absence of market intervention and the possibility to resell artworks abroad have been suggested to explain why investing in artworks was one of the most interesting opportunities under the German boot. On basis of an original database of close to 4000 artworks sold between 1944 and 1951 at Giroux, one of the most important Art Gallery in Brussels, this paper analyzes, the price movements on the Belgian art market following the liberation. Market reactions following the war are used to understand which motivations played the most important role in investorsÕ decisions. Prices on the art market experienced a massive drop. This huge price decline is attributed to two elements: fear of prosecution for war profits and the monetary reforms set into place in October 1944.Art market, Art Investment, WWII, Belgium, Post-war, Monetary reforms

Was the Emergence of the International Gold Standard Expected? Melodramatic Evidence from Indian Government Securities.

The emergence of the gold standard has for a long time been viewed as inevitable. Fluctuations of the gold-silver exchange rate in world markets were accused to lead to brutal and unsustainable switches of bimetallic countries’ money supplies. However, more recent work has shown that the option character of bimetallism provided a stabilizing feedback loop. Using original data, this paper provides support to the new view. Using quotation prices for Indian Government bonds, we analyze agents’ expectations between 1860 and 1890. The intuition is that the spread between gold and silver bonds issued by the same entity (India) and backed by a credible agent (Britain) is a “pure” measure of the silver risk. The analysis shows that up until 1874 markets were expecting bimetallism to last. It is only after this date that markets gradually started requiring a premium to hold silver bonds indicating their belief that gold would eventually become the only metallic standard.Exchange rate regime, gold standard, bimetallism, credibility, silver risk

One Asset, Two Prices: The case of the Tsarist Repudiated Bonds

Prices of repudiated bonds are insightful but scarcely observed. Based on an original daily database, this paper compares the price evolution from January 6, 1916 to August 31, 1919 of a cross-listed (Paris and London) Tsarist bond repudiated by the Soviets on February 8, 1918. After its repudiation, the bond exhibits an important geographic price differential. This unusual phenomenon is attributed to the conjunction of war conditions excluding arbitrage and specific investors' expectations regarding bailouts by French and British governments. Furthermore, data from the pre-repudiation period show that the impossibility for arbitrage is not sufficient for driving the pricing differences.bonds, repudiation, sovereign debt, Russia

Victory or Repudiation? The Probability of the Southern Confederacy Winning the Civil War

Historians have long wondered whether the Southern Confederacy had a realistic chance at winning the American Civil War. We provide some quantitative evidence on this question by introducing a new methodology for estimating the probability of winning a civil war or revolution based on decisions in financial markets. Using a unique dataset of Confederate gold bonds in Amsterdam, we apply this methodology to estimate the probability of a Southern victory from the summer of 1863 until the end of the war. Our results suggest that European investors gave the Confederacy approximately a 42 percent chance of victory prior to the battle of Gettysburg/Vicksburg. News of the severity of the two rebel defeats led to a sell-off in Confederate bonds. By the end of 1863, the probability of a Southern victory fell to about 15 percent. Confederate victory prospects generally decreased for the remainder of the war. The analysis also suggests that McClellan's possible election as U.S. President on a peace party platform as well as Confederate military victories in 1864 did little to reverse the market's assessment that the South would probably lose the Civil War.

The French art market under the Nazi boot: looking for discreet assets

The French art market during the Occupation has been the subject of numerous publications that mostly focused on the fate of looted artworks, with limited attention given to the art market itself

Multiple Potential Payers and Sovereign Bond Prices

Sovereign bonds are usually priced under the assumption that only the sovereign issuer may be responsible of their repayment. In some cases however, bondholders may legitimately expect to be repaid by more than one agent. For example, when a country breaks-up, successor states may agree to recognize their responsibility for part of the debt. Other extreme events, such as repudiations, may lead (and have led) bondholders to consider several bailout candidates at the same point in time. This paper first discusses the theoretical financial implications stemming from an infrequent and challenging situation, namely the existence of multiple potential payers. Then, through a historical precedent, the 1918 Russian repudiation, the paper confirms that the existence of multiple potential payers has a diversification effect which lowers the volatility of the bond price and increases its value. These results are strengthened by a comparison with a closely related standard case of default.Sovereign bonds; Repudiation; Default; Portfolio diversification; Multiple payers; Russia; Romania; Financial history.

How Occupied France Financed Its Own Exploitation in World War II

The occupation payments made by France to Nazi Germany between 1940 and 1944 represent one of the largest recorded international transfers and contributed significantly to financing the overall German war effort. Using a neoclassical growth model that incorporates essential features of the occupied economy and the postwar stabilization, we assess the welfare costs of French policies that funded payments to Germany. Occupation payments required a 16 percent reduction of consumption for twenty years, with the draft of labor to Germany and wage and price controls adding substantially to this burden. Vichy%u2019s postwar debt overhang would have demanded large budget surpluses; but inflation, which erupted after Liberation, reduced the debt well below its steady state level and redistributed the adjustment costs. The Marshall Plan played only a minor direct role, and international credits helped to substantially lower the nation%u2019s burden.

Is the Market Portfolio Efficient? A New Test to Revisit the Roll (1977) versus Levy and Roll (2010) Controversy

Levy and Roll (Review of Financial Studies, 2010) have recently revived the debate related to the market portfolio's efficiency suggesting that it may be mean-variance efficient after all. This paper develops an alternative test of portfolio mean-variance efficiency based on the realistic assumption that all assets are risky. The test is based on the vertical distance of a portfolio from the efficient frontier. Monte Carlo simulations show that our test outperforms the previous mean-variance efficiency tests for large samples since it produces smaller size distortions for comparable power. Our empirical application to the US equity market highlights that the market portfolio is not mean-variance efficient, and so invalidates the zerobeta CAPM.Efficient portfolio, mean-variance efficiency, efficiency test.

King Leopold\u27s Bonds and the Odious Debts Mystery

In 1898, in the wake of the Spanish-American war, Spain ceded the colony of Cuba to the United States. In keeping with the law of state succession, the Spanish demanded that the U.S. also take on Spanish debts that had been backed by Cuban revenues. The Americans refused, arguing that some of those debts had been utilized for purposes adverse to the interests of the Cuban people. This, some argue, was the birth of the doctrine of “odious debts”; a doctrine providing that debts incurred by a non-representative government and utilized for purposes adverse to the population do not need to be repaid by successor regimes. This Article tests the historical evidence in favor of the birth of the odious debts doctrine at the turn of the twentieth century by considering the treatment of perhaps the archetypal odious debt: the debt that Belgium’s King Leopold undertook to finance his horrific exploitation of the Congo Free State (“CFS”). In 1908, Leopold was forced to transfer sovereignty over the CFS to Belgium. If the doctrine of odious debts existed at the time, we should see evidence of it in the public debate about whether Belgium was obliged to take on King Leopold’s debts. Based on original archival research into political debates, litigation regarding Leopold’s estate, and contemporary prices and yields of Leopold’s bonds, we see no such evidence