Skip to main content

Price discovery in the 18th Century

The journal specialises in original research that focuses upon the use of modern economic theory and econometric techniques to investigate historical issues.

The paper titled 'Price discovery in the 18th Century' combines the methodological approaches of modern finance and historical analysis, to investigate the time-varying nature of price discovery – the process by and the speed with which, new information is reflected in the prices of traded assets – in eighteenth century cross-listed stocks.

Specifically, the work investigates how quickly news was impacted in share prices for two of the ‘great moneyed companies’, the Bank of England and the East India Company, over the period 1723 to 1794.

These British companies were cross-listed on the London and Amsterdam stock exchanges and news between the capitals flowed mainly via the use of boats that sailed up to twice per week transporting mail. The study examines in detail the historical context surrounding the defining events of the period, and uses these as a guide to how the data should be analysed.

The research shows that both trading venues contributed to price discovery, and that although the London venue was more important for these stocks, Amsterdam also played an increasing role.

The results of this research demonstrates that despite communication being delayed between the two financial centres (and being tricky especially during periods of warfare and economic uncertainty), price differentials would disappear so that prices returned to equilibrium quickly, and any arbitrage opportunities would therefore swiftly disappear.

The study is also able to show that the prices of these early examples of cross-listed stocks incorporated information from both listing venues despite operating in a period of great political and financial turbulence.

Professor Adrian Bell, head of the ICMA Centre, stated "These findings offer an important wider implication; that financial markets do not require modern forms of immediate electronic communication or a highly developed regulatory framework in order to function effectively."

Professor Adrian Bell

Associate Pro-Vice-Chancellor Research (Prosperity and Resilience)
Published 3 February 2015
Topics:
Research news

You might also like

Strategic risk shifting and idiosyncratic volatility

6 March 2015
A recent research paper, “Strategic risk shifting and idiosyncratic volatility”, by Dr Nicholas Chen with his co-authors, has been accepted for presentation at the 2015 Western Finance Association Meetings. The conference is highly prestigious with an acceptance rate from submitted papers of only 8%.
Research news

ICMA Centre Profiles – Juvereya Shoab

7 January 2013
Today we meet Juvereya Shoab, one of the four students being awarded the prestigious student award scheme at the University of Reading, the Chancellor's Award.

Professor Chris Brooks appointed Vice President of BAFA

15 May 2017
Professor Chris Brooks has been appointed Vice President of the British Accounting and Finance Association (BAFA) from 1 May 2017.