The War Next Door and the Reds are Coming: The Spanish Civil War and the Portuguese Stock Market

42 Pages Posted: 7 Oct 2019

See all articles by Diogo Leitão

Diogo Leitão

New University of Lisbon - Nova School of Business and Economics

Jaime Marques Pereira

New University of Lisbon - Nova School of Business and Economics

João Pereira dos Santos

New University of Lisbon - Nova School of Business and Economics

José Tavares

Nova School of Business and Economics - Universidade Nova de Lisboa ; Centre for Economic Policy Research (CEPR)

Date Written: September 2019

Abstract

The Spanish Civil War (July 1936 to April 1939) was a key event that paved the way for World War II, unfolding with unprecedented violence and uncertainty over the its outcome. In this paper, we analyze the impact of the events of the Spanish Civil War on the Portuguese stock returns. Portugal is a particularly interesting case for analysis given its geographical exposure and historical ties to Spain as well as its political ties to the Nationalist side. Unlike previous studies of stock market responses to World War II outcomes, in our period of analysis the world at large was at peace, allowing for a clearer attribution of causation. We examine investors' reactions to news from the Spanish War using a panel of weekly returns for firms listed on the Lisbon Stock market, after classifying a series of important developments of the Spanish Civil War, classified according to its nature - military or political, and which contender emerged as favored - the Republicans, on the left, or the Nationalists, on the right. We run dynamic specifications with firm and month fixed effects, controlling for the reference interest rate in London, and events in Portugal. Our results reveal that Spanish Civil War events affect returns negatively, especially events that are military in nature. When we break down our sample into overseas firms - those whose most significant assets were located in Africa - and non-overseas firms, the latter present more significant effects from the event variables, especially from the Pro-Republican military events. Our findings are robust to the different specifications and suggest that both general uncertainty and partisan preferences affect Portuguese returns.

Keywords: economic history, financial markets, Spanish Civil War, stock price, uncertainty

JEL Classification: C12, C58, G12, N43, N83

Suggested Citation

Leitão, Diogo and Marques Pereira, Jaime and Pereira dos Santos, João and Tavares, José, The War Next Door and the Reds are Coming: The Spanish Civil War and the Portuguese Stock Market (September 2019). CEPR Discussion Paper No. DP13990. Available at SSRN: https://ssrn.com/abstract=3464517

Diogo Leitão (Contact Author)

New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Jaime Marques Pereira

New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

João Pereira dos Santos

New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

José Tavares

Nova School of Business and Economics - Universidade Nova de Lisboa

Campus de Carcavelos
Rua da Holanda, 1
Lisboa, 2775-405
Portugal
+351 21 380 1669 (Phone)
+351 21 388 9073 (Fax)

HOME PAGE: http://josetavares.pt

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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