In this article, we investigate the information efficiency of the Berlin stock exchange using returns of a new daily stock-market index for the years 1892-1913. We focus on the impact of the 1896 stock exchange law and of the increases of the stock-market turnover tax in 1894 and 1900 on information efficiency. We fit an ARMA(0,1)-GARCH(1,1) model to the data and search for structural breaks. This approach yields no convincing evidence that the tax increases had a negative influence on weak information efficiency. In addition, the restriction of derivative trading by the 1896 stock exchange law did not result in measurable changes in the autocorrelation of daily returns.
Liquidity measures, liquidity drivers, and expected returns on an early call auction market
Abstract:We analyze the impact of illiquidity on asset pricing on a rather stable stock market in a volatile economic environment, the Berlin Stock Exchange from 1892 to 1913. We use a Lesmond et al. (1999) measure of transaction costs to proxy illiquidity. Our results show that transaction costs were low and comparable to today's costs. However, the illiquidity risk premium was considerably higher. Applying a conditional liquidity-adjusted capital asset pricing model, we show that recessions and, in particular, banking crises cause the higher illiquidity risk premia.
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