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Wars, inflation and stock market returns in France, 1870–19451

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  • Le Bris, David

Abstract

This article undertakes a comparative study of the effects of three wars upon the French stock market. Periods of war are highly turbulent financial times and trigger multiple factors to act upon stock prices. The article presents evidence suggesting that stock price behaviour is influenced by the specific way each war is financed. Financed solely by regular long-term debt, the Franco-Prussian War exhibited stock prices that only reflected real activity. On the other hand, both world wars were partially financed by monetary creation but differed with regard to the extent of financial repression. In the case of World War II, monetary creation within a closed repressed economy led to a paradoxical, short-lived increase in stock prices. The article also examines how war affected the characteristics of the market. The Franco-Prussian War caused a durable high interest rate; World War I smoothed out most of the public services firms and increased volatility; whilst World War II affected the components of the stock market. Overall, mainly due to market values being destroyed during the world wars, the importance of the stock market in the economy decreased.

Suggested Citation

  • Le Bris, David, 2012. "Wars, inflation and stock market returns in France, 1870–19451," Financial History Review, Cambridge University Press, vol. 19(3), pages 337-361, December.
    • Handle: RePEc:cup:fihrev:v:19:y:2012:i:03:p:337-361_00
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    Citations

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    Cited by:

    1. Hanedar, Avni Önder & Hanedar, Elmas Yaldız, 2017. "Ottoman stock returns during the Turco-Italian and Balkan Wars of 1910-1914," eabh Papers 17-02, The European Association for Banking and Financial History (EABH).
    2. Hanedar, Avni Önder & Hanedar, Elmas Yaldız, 2017. "Ottoman stock returns during the Turco-Italian and Balkan Wars of 1910-1914," eabh Papers 17-02, The European Association for Banking and Financial History (EABH).
    3. 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.
    4. Hanedar, Avni Önder & Yaldız Hanedar, Elmas, 2017. "Stock market reactions to wars and political risks: A cliometric perspective for a falling empire," MPRA Paper 85600, University Library of Munich, Germany, revised 25 Mar 2018.
    5. Dmitry Kuvshinov & Kaspar Zimmermann, 2018. "The Big Bang: Stock Market Capitalization in the Long Run," Working Papers 0136, European Historical Economics Society (EHES).
    6. Kuvshinov, Dmitry & Zimmermann, Kaspar, 2018. "The big bang: Stock market capitalization in the long run," IBF Paper Series 02-18, IBF – Institut für Bank- und Finanzgeschichte / Institute for Banking and Financial History, Frankfurt am Main.
    7. Urquhart, Andrew & Hudson, Robert, 2016. "Investor sentiment and local bias in extreme circumstances: The case of the Blitz," Research in International Business and Finance, Elsevier, vol. 36(C), pages 340-350.
    8. David le Bris & William N. Goetzmann & Sébastien Pouget, 2014. "Testing Asset Pricing Theory on Six Hundred Years of Stock Returns: Prices and Dividends for the Bazacle Company from 1372 to 1946," NBER Working Papers 20199, National Bureau of Economic Research, Inc.
    9. Hudson, Robert & Urquhart, Andrew, 2022. "Naval disasters, world war two and the British stock market," Research in International Business and Finance, Elsevier, vol. 59(C).

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