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The liquidity of the London capital markets, 1825–70 †
Author(s) -
Campbell Gareth,
Turner John D.,
Ye Qing
Publication year - 2018
Publication title -
the economic history review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.014
H-Index - 49
eISSN - 1468-0289
pISSN - 0013-0117
DOI - 10.1111/ehr.12530
Subject(s) - market liquidity , liquidity crisis , accounting liquidity , liquidity premium , liquidity risk , monetary economics , market maker , economics , bond , market impact , stock market , capital market , financial system , financial economics , business , order (exchange) , market microstructure , finance , paleontology , horse , biology
This article examines the liquidity of the London capital markets in the decades following the liberalization of UK incorporation law. Using comprehensive stock and bond data, we calculate a measure of market liquidity for the period 1825–70. We find that stock market liquidity trended upwards but bond market liquidity did not increase over the sample period. Stock market liquidity during our sample period was partially influenced by the bond market, rather than fluctuations in economic output. In our analysis of the cross‐sectional determinants of individual stock liquidity, we find that firm size and the number of issued shares were important determinants of liquidity. Finally, we find little evidence of an illiquidity premium, which is consistent with the view that investors did not price liquidity in this nascent market.