The Boats that Did Not Sail: Asset Price Volatility and Market Efficiency in a Natural Experiment

70 Pages Posted: 22 Feb 2013

See all articles by Peter Koudijs

Peter Koudijs

Stanford GSB; National Bureau of Economic Research (NBER)

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Date Written: February 2013

Abstract

What explains short-term fluctuations of stock prices? This paper exploits a natural experiment from the 18th century in which information flows were regularly interrupted for exogenous reasons. English shares were traded on the Amsterdam exchange and news came in on sailboats that were often delayed because of adverse weather conditions. The paper documents that prices responded strongly to boat arrivals, but there was considerable volatility in the absence of news. The evidence suggests that this was largely the result of the revelation of (long-lived) private information and the (transitory) impact of uninformed liquidity trades on intermediaries' risk premia.

Suggested Citation

Koudijs, Peter, The Boats that Did Not Sail: Asset Price Volatility and Market Efficiency in a Natural Experiment (February 2013). NBER Working Paper No. w18831, Available at SSRN: https://ssrn.com/abstract=2222518

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