Chapter 13: Bond Values and World War II Events with Marcel Kucher
THE BASIC APPROACH Economists assume that price movements on ﬁnancial markets and, in particular, the value of stocks and bonds, reﬂect economic and political events. They affect current returns (and interest payments) as well as the probability that the capital sum is paid back by the due date. Looking at government bond prices of European countries traded on the Swiss stock exchange during World War II (WWII) therefore provides a useful way of interpreting the importance attributed to various events during the war. The link between ﬁnancial markets and historical events has been observed for a long time. The story of Baron Rothschild making huge gains by speculating on the change in bond prices induced by the outcome of one of Napoleon’s decisive battles, is famous. Recently, this relationship has been systematically exploited by applying advanced econometric techniques to identify break points in ﬁnancial values. A good example would be the impact of the United Nations’ peacekeeping policy on exchange rates: while the missions in Lebanon resulted in a long-lasting positive effect on the exchange rate, no systematic changes induced by the UN sanctions could be identiﬁed in the South African exchange rates (Sobel, 1998). Willard, Guinnane and Rosen (1996) demonstrate that events occurring during the US Civil War (1862–6) systematically affected the rate of exchange of greenbacks relative to the gold dollar. In some instances, the events identiﬁed by break points in the exchange rate have not been found noticeable by traditional historians and, conversely,...
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