Abstract
Scholars historically believed that the market price data reported for Amsterdam markets were spot prices prior to 1747. Neal (The rise of financial capitalism: international capital markets in the Age of Reason. Cambridge University Press, Cambridge, 1990) provided econometric evidence that the prices were time. A newly constructed dataset, containing a much higher frequency of observations from Amsterdam markets, allows us to resolve this dispute. We provide conclusive evidence that the prices report were actually spot, as originally believed.
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Notes
The “Appendix” contains more details regarding the discrepancies between previous data sets and the price reported in The Course of the Exchange and Amsterdamsche Courant.
Negative costs of carry or convenience yields are also a possibility. In this case, the relationship between the number of days until the settlement date and the price difference would be negative. It is unlikely that such a relationship would be a dominant feature of the data of such a long period of time. Nevertheless, the empirical tests in this paper are suited to detect such a relationship.
All regressions estimated in this paper use Newey–West standard errors which correct the standard errors of the estimates for the presence of autocorrelation and heteroskedasticity.
The daily cost of carry is found by multiplying the annual interest rate by the share price and dividing by the number of days in a year.
We thank an anonymous referee for pointing this possibility out to us.
It should also be noted that the number of observations use in the regressions in Tables 1 and 2 are roughly the same even though the second covers more than twice the number of years. This is a result of the higher frequency of observations in the newly constructed data set. This implies that any difference in the results cannot be attributed to a difference in sample size.
This same quotation is used in Neal (1990, p. 153), but there is one error. The sentence, “In the year 1747 both prices are sometimes mentioned.” is reported in Neal with the year 1737 instead of 1747. An inspection of Van Dillen (1931) confirms that 1747 is the first year than Van Dillen reported observing time prices, not 1737.
It should also be remembered the payment of the dividend in London did not take place until about 2 weeks after the beginning of the ex-dividend period. Thus, the time between the actual payment of the dividend and when the dividend was reflected in the Dutch prices was 2–3 weeks. The dates of the dividend payments were common knowledge and the actual size of the dividend payments varied little. This would suggest that the lag was not associated with any delay in information transmission between the two markets. The most likely source of the lag was some institutional arrangement in Amsterdam which determined time when a buyer was entitled to the dividend and when the dividend belonged to the seller.
Neal (1990) also includes a variable for the Dutch/English exchange rate. Given that market integration is not the focus of this paper and the fact that the exchange rate is likely uncorrelated with the explanatory variables used, the exchange rate variable was not used in this regression.
References
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Acknowledgments
We would like to that Larry Neal and Peter Koudijs for help in located the data used in this paper. We are also grateful from the comments of the participants at the Western Economic Association International Annual conference and to the detailed comments from two anonymous referees. We would also like to acknowledge the excellent research assistance provided by Nicholas Lacsina. Much of Brian Beach's work on this paper was done while he was an undergraduate student at the University of Washington Tacoma.
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Appendix: Data
Appendix: Data
Comparing photographed original issues of the Amsterdamsche Courant with the data sets constructed by Van Dillen and Neal reveals 86 differences between the stock prices published in the Dutch newspaper and the transcribed prices. Of those differences, 28 appear to be incorrect transcriptions made by Neal from the Van Dillen data set. Most of these differences are relatively small with the average difference being less than one pound. There were sixteen cases where Van Dillen’s transcription differs from the published prices. The average price difference in those cases was 1.23. There were also 17 dates where the date of the stock price in the Van Dillen data set did not match the data from the Amsterdamsche Courant. In almost all of those cases the date was only off by a single day. In six cases, it appears the Neal incorrectly copied dates from the Van Dillen data. More puzzling was once date where Van Dillen has Dutch price information for the Bank of England and the East India Company, but the authors were not able to locate and stock price information in the Amsterdamsche Courant. It is possible that those prices were obtained from another source.
The stock prices that Neal transcribed from The Course of the Exchange were also compared with microfilm copies of the British publication. From over 4,100 days with recorded prices, there were 67 incorrect prices in the Neal data set. There were also 21 cases where The Course of the Exchange reported “Nothing Done” and the Neal data set contained the most recent stock price. It is not clear what “Nothing Done” was intended to indicate. It is likely that this mean that, while the markets were open, no trading took place that day. Given the ambiguity, the decision was made to identify those cases as not having a reported price available instead of following Neal and using the previous price.
An inspection of the data revealed eleven outliers. The table below contains the date, the previous and subsequent prices, and the reported price. The final column contains the price which was adjusted to the most likely value considering the previous and subsequent prices. In all cases only a single numeral was changed to arrive at the adjusted price. The exceptions are the observations from 5/11/1733, 3/21/1735, 9/18/1739 where it appears that the prices from the Bank of England and the East India Company were substituted for each other (see Table 9).
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Beach, B., Norman, S. & Wills, D. Time or spot? A revaluation of Amsterdam market data prior to 1747. Cliometrica 7, 61–85 (2013). https://doi.org/10.1007/s11698-012-0081-z
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DOI: https://doi.org/10.1007/s11698-012-0081-z