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Political Risk and the International Bond Market between the 1848 Revolution and the Outbreak of the First World War

43 Pages Posted: 8 May 2006  

Niall Ferguson

Harvard University - Department of History; Stanford University - The Hoover Institution on War, Revolution and Peace

Abstract

This article uses price data and editorial commentaries from the contemporary financial press to measure the impact of political events on investors' expectations from the middle of the nineteenth century until the First World War. The main question addressed is why political events appeared to affect the world's biggest financial market, the London bond market, much less between 1881 and 1914 than they had between 1843 and 1880. In particular, I ask why the outbreak of the First World War, an event traditionally seen as having been heralded by a series of international crises, was not apparently anticipated by investors. The article considers how far the declining sensitivity of the bond market to political events was a result of the spread of the gold standard, increased international financial integration, or changes in the fiscal policies of the great powers. I suggest that the increasing national separation of bond markets offers a better explanation. However, even this structural change cannot explain why the London market was so slow to appreciate the risk of war in 1914. To investors, the First World War truly came as a bolt from the blue.

Suggested Citation

Ferguson, Niall, Political Risk and the International Bond Market between the 1848 Revolution and the Outbreak of the First World War. Economic History Review, Vol. 59, No. 1, pp. 70-112, February 2006. Available at SSRN: https://ssrn.com/abstract=877418 or http://dx.doi.org/10.1111/j.1468-0289.2005.00335.x

Niall Ferguson (Contact Author)

Harvard University - Department of History ( email )

Cambridge, MA
United States

Stanford University - The Hoover Institution on War, Revolution and Peace

Stanford, CA 94305-6010
United States

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