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Liquidity premia during the industrial breakthrough: evidence from the Stockholm Stock Exchange, 1901-1919-super- †

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  • Otto Gernandt
  • Thomas Palm
  • Daniel Waldenström

Abstract

This paper analyzes the importance of liquidity in determining security returns for firms listed on the Stockholm Stock Exchange between 1901 and 1919. Using a new and detailed firm-level data set with matching stock price and balance sheet information, we construct new stock return indices as well as firm-specific liquidity measures for our empirical analysis. Our main finding is that there was a substantial illiquidity effect on returns. Securities in the 25th percentile of the liquidity distribution earned, on average, a 0.59 percent higher monthly return than securities in the 75th percentile. This effect is comparable with estimates from modern stock markets and suggests that the liquidity premium is not solely a modern phenomenon but could be an inherent characteristic of financial markets. Copyright , Oxford University Press.

Suggested Citation

  • Otto Gernandt & Thomas Palm & Daniel Waldenström, 2012. "Liquidity premia during the industrial breakthrough: evidence from the Stockholm Stock Exchange, 1901-1919-super- †," European Review of Economic History, European Historical Economics Society, vol. 16(3), pages 247-269, August.
    • Handle: RePEc:oup:ereveh:v:16:y:2012:i:3:p:247-269
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    File URL: http://hdl.handle.net/10.1093/ereh/hes002
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