'High and Dry': the Liquidity and Credit of Colonial and Foreign Government Debt in the London Stock Exchange (1880-1910)

59 Pages Posted: 6 Oct 2015 Last revised: 9 Oct 2015

See all articles by Marc Flandreau

Marc Flandreau

Centre for Economic Policy Research (CEPR)

Matthieu Chavaz

Independent

Date Written: October 2, 2015

Abstract

We gather the most comprehensive database of government bonds for the first globalisation era to date to conduct the first historically informed study of the importance of liquidity for colonial and sovereign yield spreads. Considering both liquidity and credit shows that the two markets were segmented: credit was the most important factor in the pricing of sovereign debt, but liquidity predominated in the colonial market, explaining 10% to 39% of colonial yield spreads. This reflected both different market microstructures and bond clienteles, themselves influenced by heterogeneous political, institutional and financial arrangements. The flows from the colonies to British ‘ordinary’ investors in the form of illiquidity premia should be taken into account in future studies of the political economy of empire.

Keywords: Government bonds, British Empire, liquidity, credit risk, colonial finance

JEL Classification: G12, N2, N23, N43

Suggested Citation

Flandreau, Marc and Chavaz, Matthieu, 'High and Dry': the Liquidity and Credit of Colonial and Foreign Government Debt in the London Stock Exchange (1880-1910) (October 2, 2015). Bank of England Working Paper No. 555, Available at SSRN: https://ssrn.com/abstract=2669430 or http://dx.doi.org/10.2139/ssrn.2669430

Marc Flandreau (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Matthieu Chavaz

Independent ( email )

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