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Financial market liquidity, returns and market growth: evidence from Bolsa and Börse, 1902–1925

Published online by Cambridge University Press:  01 March 2010

Lyndon Moore
Lyndon Moore
Affiliation:
Université de Montréallyndon.moore@umontreal.ca
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Abstract

The article is based on a unique data set of securities traded on the Madrid Bolsa and the Zurich Börse between 1902 and 1925. We examine the pricing of liquidity and demonstrate that the liquidity level of securities was an important determinant of cross-sectional returns. Factors that are usually found important in contemporary markets, such as securities' sensitivity to market-wide liquidity shocks and market movements, turn out to have been irrelevant in the early twentieth century. In addition, the illiquidity of the Madrid market appears to have modestly slowed capital raising there. Our results suggest that market liquidity was an important determinant of the growth and development of financial markets.

Type
Articles
Information
Financial History Review , Volume 17 , Issue 1 , April 2010 , pp. 73 - 98
Copyright
Copyright © European Association for Banking and Financial History e.V. 2010

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References

1 I would like to thank the Review's editor, an anonymous referee, Hendrik Bessembinder, Ambarish Chandra, Allan Collard-Wexler, Toby Daglish, Kathleen Hagerty, Richard Kim, Robert Korajczyk, Martin Lally, John McDermott, Alexey Malakhov, Damien Moore and Ronnie Sadka for useful comments on the article. Mercedes Delgado-Garcia provided excellent assistance with the compilation of the data set.

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