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Marcos Manuel Salgado

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Markets under Siege: How Differences in Political Beliefs can Move Financial Markets

Conflict and Polarization Initiative Fellow | 2018 - 2019 Academic Year

work, Entrepreneurship, and finance

Can differences in beliefs about politics, particularly the benefits of war and peace, move markets?  During the Siege of Paris by the Prussian army (1870-71) and its aftermath, we document that the price of the French 3% sovereign bond (rente)  differed persistently between the Bourse in Paris and elsewhere, despite being one of the most widely held and actively traded financial assets in continental Europe. Further, these differences were large, reaching the equivalent of 1.11% of French GDP in overall value. We show these differences manifested themselves during the period of limited arbitrage induced by the Siege and persisted until the terms of peace were revealed. As long as French military resistance continued, the rente price was higher in Paris than the provincial markets, but when the parties ceased fire and started negotiating peace terms this pattern was reversed. Further, while the price responded more to war events in Paris, the price responded more to peace events elsewhere. These specific patterns are difficult to reconcile with other potential mechanisms, including differential information sets, need for liquidity, or relative market thickness. Instead, we argue, these results are consistent with prices reflecting the updating of different prevailing political beliefs that existed in Paris and elsewhere about the benefits of war and peace.


Marcos Manuel Salgado, Graduate School of Business

marcos salgado

Marcos Salgado is a PhD candidate in the Political Economy group at Stanford GSB and currently on the job market. His research fields are Political Economy, Comparative Politics, International Relations, Economic History, and Development Economics. His main research focus is on the role of personal relationships in the governance of colonial Latin America. Together with Profs. Saumitra Jha and Peter Koudjis, he also studies the effects of beliefs about war and peace on asset prices in nineteenth century France.

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