Common stock returns in the pre-WWI Berlin Stock Exchange

Abstract

We provide new evidence on the efficiency of the Berlin Stock Exchange prior to World War I, when it ranked among the top few markets worldwide by market capitalization. Using a new set of monthly stock price data for a random sample of German companies between 1904 and 1910, we estimate a typical three-factor model and find that returns relate positively to risk (beta), but that book-to-market ratios enter as well (negatively). Firm size and earnings/price ratio relate positively but weakly to returns. The results indicate that the Berlin market did not suffer from unusually large pricing anomalies; thus, its performance was not substantially different from modern markets. Also supporting the conclusion of market efficiency, a momentum portfolio earns returns not different from zero, on average.

False Discoveries in the Anomaly Research: New Insights from the Stock Exchange of Melbourne (1927-1987)

“…Notably, the direction of the relationship between the returns and the variables in this category is not uniform. Some assume a positive correlation between risk and future stock performance (Sharpe, 1964;Douglas, 1967), whereas others argue that the relationship is negative (Frazzini and Pedersen, 2014;Ang et al, 2006;Zaremba et al, 2020). At times, the evidence is contradictory, even in the case of single anomalies.…”

The cross-section of stock returns in an early stock market

“…However, Bossaerts and Fohlin (2000) find the opposite using annual data on 50 companies from 1881 to 1913. Fohlin and Reinhold (2010) demonstrate a negative bookto-market effect in their sample with monthly data on 37 firms, covering the period 1904 to 1910. For the UK market, using annual data for 1871 to 1913, Grossman and Shore (2006) find no size effect and some evidence of a value effect.…”

Innovation and upheaval: early growth in Greek capital market listings and IPOs from 1880 to the Second World War in the Athens Stock Exchange†

“…See studies on London, Berlin, and New York by Derrien and Kecskés, ‘Initial public offerings’; Chambers, ‘Gentlemanly capitalism revisited’; Lehmann, ‘Underwriter activity’; Chambers, ‘Going public’; Fohlin, ‘Asymmetric information’; Fohlin and Reinold, ‘Common stock returns’; Burhop; ‘Underpricing’; Burhop, Chambers, and Cheffins, ‘Regulating IPOs’; Lehmann, ‘Taking firms’.…”

“…See Burhop, ‘Underpricing’; Chambers, ‘Gentlemanly capitalism revisited’; Lehmann, ‘Underwriter activity’; Chambers, ‘Going public’; Fohlin, ‘Asymmetric information’; Fohlin and Reinold, ‘Common stock returns’; Burhop et al., ‘Regulating IPOs’; Lehmann, ‘Taking firms’; Chambers and Dimson, ‘IPO underpricing over the very long run’.…”