Financial History Database: German Stock Market 1900-1930

Project Start:09/2017
Researchers:Stephanie Collet, Caroline Fohlin
Category: Data Center
Funded by:LOEWE

The financial crisis of 2007-09 came as a complete surprise to most and brought about widespread condemnation of Wall Street and the lack of regulatory oversight of the financial system: How could financial markets and institutions fail so spectacularly? Many demanded that the government take action to stave off the next crisis.

This recent episode echoes crises that came before; the Great Depression, and the slew of regulations and institutions created in response, being the foremost example of the pattern of financial crisis, public outcry, and regulatory response. For Germany, the “Gründerjahre” in the 1870s represents a similar-magnitude episode. The stock market boom and bust involved a significant degree of fraud and also resulted in a number of legal and regulatory initiatives in the 1880s. Historical research holds the key to a better understanding of financial cycles and regulatory frameworks. There is a small but growing body of research on the impact of financial crises on financial market microstructure, corporate governance (e.g. their capital structure) and company valuations (share prices). While a few studies have focused on pre WWI Germany, hardly any investigate German finance during the interwar period and the accompanying hyperinflation, market bubble and 1929 crash, and the Great Depression. This gap should be filed.

The topic of this project is to develop and analyze German stock market historical data to tackle underexplored questions on microstructure and asset pricing. Given the fact that Germany at that time did had both a very developed capital market and also an advanced regulatory framework, the data set will help answer key questions (e.g. asset pricing) but also projects with significant spillovers for current policy debates (e.g. on the capital market union). These historical data could investigate the effects from firms’ cartelization on their stock prices, analyze the microstructure of the Berlin market and tackle asset pricing related questions.The objective of this project is to collect (i.e. original database) and study the Berlin Stock Market data 1900-1930. The data will collect, on a daily basis, 2 years of data before WWI, 4 years of data 1920-1924 and 2 after the hyperinflation. The daily basis is a must given the lack of bid-ask spreads. Using daily data, we can compute covariance-based liquidity measures and target good journals.