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Economically irrational pricing of nineteenth-century British government bonds

  • Andrew Odlyzko (a1)

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.

Corresponding author
A. Odlyzko, School of Mathematics, University of Minnesota, Minneapolis, MN 55455, USA; email:; .
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Comments from the anonymous referees and the editor are gratefully acknowledged. Thanks are also due to Ron Alquist, Rob Brown, Jan Klovland, Larry Neal, Richard Sylla and the Nineteenth Century Subfield group at the University of Minnesota (especially Michael Hancher) for comments and information, to the Times Newspapers Ltd Archive for information from their files, and to Yuxi Chen, Yuanshun Yao, Yilin Zhai, Yiqun Zhang, Jialu Zhong and Ying Zhu for assistance in transcribing and checking transcriptions of gilt prices. The many other individuals and institutions that assisted in the larger research project of which this is a part are thanked at
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