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How Important Was Silver? Some Evidence on Exchange Rate Fluctuations and Stock Returns in Colonial-Era Asia

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  • Warren Bailey

    (Cornell University)

  • Kirida Bhaopichitr

    (World Bank OfficeBangkok)

Abstract

We study the impact of silver price changes on stock returns from seven small open economies that switched among silver, gold, and paper money standards at different times between 1873 and 1939. Silver exposure is a priced factor in monthly equity returns. Changes in silver prices forecast realized monthly equity risk premiums, suggesting that expected risk premiums varied with the price of silver. Changes in silver prices forecast annual indicators of trade flows, global business cycles, and inflation. The evidence suggests how corporate profits and stock market risk premiums are linked to exchange rates, trade, economic activity, and inflation.

Suggested Citation

  • Warren Bailey & Kirida Bhaopichitr, 2004. "How Important Was Silver? Some Evidence on Exchange Rate Fluctuations and Stock Returns in Colonial-Era Asia," The Journal of Business, University of Chicago Press, vol. 77(1), pages 137-174, January.
    • Handle: RePEc:ucp:jnlbus:v:77:y:2004:i:1:p:137-174
    DOI: 10.1086/379865
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    Cited by:

    1. Burdekin, Richard C.K., 2008. "US pressure on China: Silver flows, deflation, and the 1934 Shanghai credit crunch," China Economic Review, Elsevier, vol. 19(2), pages 170-182, June.
    2. Godil, Danish Iqbal & Sarwat, Salman & Khan, Muhammad Kamran & Ashraf, Muhammad Sajjad & Sharif, Arshian & Ozturk, Ilhan, 2022. "How the price dynamics of energy resources and precious metals interact with conventional and Islamic Stocks: Fresh insight from dynamic ARDL approach," Resources Policy, Elsevier, vol. 75(C).
    3. Niv Horesh, 2015. "Gerschenkron Redux? Analysing New Evidence on Joint-Stock Enterprise in Pre-War Shanghai," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 29(1), pages 25-46, May.
    4. Mpoha, Salifya & Bonga-Bonga, Lumengo, 2020. "Assessing the extent of exchange rate risk pricing in equity markets: emerging versus developed economies," MPRA Paper 99597, University Library of Munich, Germany.
    5. Colin Weiss, 2020. "Contractionary Devaluation Risk: Evidence from the Free Silver Movement, 1878-1900," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 705-720, October.
    6. El-Shagi, Makram & Zhang, Lin, 2020. "Trade effects of silver price fluctuations in 19th-century China: A macro approach," China Economic Review, Elsevier, vol. 63(C).
    7. Rana, Hafiz Muhammad Usman & O'Connor, Fergal, 2023. "Domestic macroeconomic determinants of precious metals prices in developed and emerging economies: An international analysis of the long and short run," International Review of Financial Analysis, Elsevier, vol. 89(C).

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