The Krach of 1882, the Bourse De Paris and the Importance of Microstructure
33 Pages Posted: 4 Dec 2006
Date Written: November 2006
Abstract
The crash of the French stock market in 1882 presented the Paris Bourse with its worst crisis of the late nineteenth century. Three features of exchange's microstructure, a dominant forward market, a small number of brokers, and a common fund that guaranteed brokers' transactions, amplified the collapse. Using new archival data, this paper shows that the bourse's common fund, designed to guarantee the liquidity of the exchange from idiosyncratic shocks, made it susceptible to systemic shocks. Only an emergency loan from the Bank of France saved the bourse. Neither the New York nor the London exchanges, which had very different structures, experienced similar liquidity crises.
Keywords: stock market crash, bourse, microstructure
JEL Classification: N23, G10
Suggested Citation: Suggested Citation