Supplementary Material for 'Economically Irrational Pricing of 19th Century British Government Bonds'

Financial History Review

2016

Self Cite

British government bonds formed the deepest, most liquid and most transparent financial market of the nineteenth century. This article shows that those bonds had long periods, extending over decades, of anomalous behavior, in which Consols, the largest and best known of these instruments, were noticeably overpriced relative to equivalent securities which offered the same interest rate and the same guarantee of payment. This finding and similar ones for other comparable pairs of British gilts appear to provide the most extreme counterexamples documented so far to the Efficient Markets Hypothesis and to the Law of One Price, and point the way to further investigations on the origins and nature of the modern economy.

“…References and new material (such as studies on liquidity, gilt ownership, etc.) are available in Odlyzko (2014, 2016).…”

Section: IImentioning

confidence: 99%

mentioning

confidence: 99%

Economically irrational pricing of nineteenth-century British government bonds

Financial History Review

2016

Self Cite

“…References and new material (such as studies on liquidity, gilt ownership, etc.) are available in [33,34].…”

Section: British Giltsmentioning

confidence: 99%

“…Before 1861, we can find some published advice for banks to keep half of their reserve in CA and half in RA (see [33]). After 1861, that became irrelevant, and so there may have been a migration of large large active investors to CA 6 .…”

Section: British Giltsmentioning

confidence: 99%

“…It is publicly available on the author's home page, http://www.dtc.umn.edu/∼odlyzko/19finance/ The other collection is of notes and discussions about gilts mispricings in the contemporary literature, primarily the press, but also books, pamphlets, and official documents. They are cited frequently with full references in this paper, as well as in the supplementary manuscript [33]. That manuscript considers in more detail the behavior of CA overpricing during various interesting periods, the coverage of that phenomenon in the press, and the gilts investments of various groups, such as the universities of Cambridge and Oxford.…”

Section: Introductionmentioning

confidence: 99%

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Economically Irrational Pricing of 19th Century British Government Bonds

2014

SSRN Journal

Self Cite

Abstract. British government bonds formed the deepest, most liquid, and most transparent financial market of the 19th century. This paper shows that those bonds had long periods, extending over decades, of anomalous behavior, in which Consols, the largest and best known of these instruments, were noticeably overpriced relative to equivalent securities which offered the same interest rate and the same guarantee of payment. This finding and similar ones for other comparable pairs of British gilts appear to provide the most extreme counterexamples documented so far to the Efficient Markets Hypothesis and to the Law of One Price, and point the way to further investigations on the origins and nature of the modern economy.

Novel market inefficiencies from early Victorian times

Financial History Review

2017

Self Cite

A previously unknown pricing anomaly existed for a few years in the late 1840s in the British government bond market, in which the larger and more liquid of two very large bonds was underpriced. None of the published mechanisms explains this phenomenon. It may be related to another pricing anomaly that existed for much of the nineteenth century in which terminable annuities were significantly underpriced relative to so-called ‘perpetual’ annuities that dominated the government bond market. The reasons for these mispricings seem to lie in the early Victorian culture, since the basic economic incentives as well as laws and institutions were essentially the familiar modern ones. This provides new perspectives on the origins and nature of modern corporate capitalism.