Skip to main content

“High & Dry”: The Liquidity and Credit of Colonial and Foreign Government Debt and the London Stock Exchange (1880–1910)

  • Matthieu Chavaz (a1) and Marc Flandreau (a2)

We gather a new database to conduct the first historically informed study of the importance of liquidity and credit for government bonds between 1880 and 1910. We argue that colonial and sovereign debt markets were segmented owing to differences in underlying information asymmetries. The result was heterogeneous pricing of colonial and sovereign debt, and different market microstructures and clienteles, themselves influenced by political, institutional, and financial arrangements. We find that sovereign spreads mainly reflected credit risks, while colonial spreads mainly reflected liquidity risks. Liquidity premia were economically large and significant, contributing between 10 percent and 39 percent of colonial spreads. These findings help understanding why the seemingly dry subject of colonial illiquidity inspired passionate disputes and ground-breaking reforms of financial imperial institutions.

  • View HTML
    • Send article to Kindle

      To send this article to your Kindle, first ensure is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

      Note you can select to send to either the or variations. ‘’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

      Find out more about the Kindle Personal Document Service.

      “High & Dry”: The Liquidity and Credit of Colonial and Foreign Government Debt and the London Stock Exchange (1880–1910)
      Available formats
      Send article to Dropbox

      To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

      “High & Dry”: The Liquidity and Credit of Colonial and Foreign Government Debt and the London Stock Exchange (1880–1910)
      Available formats
      Send article to Google Drive

      To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

      “High & Dry”: The Liquidity and Credit of Colonial and Foreign Government Debt and the London Stock Exchange (1880–1910)
      Available formats
Hide All

Special thanks are due to Riad Rezzik for extensive discussion and insight and for sharing data with us. We are very grateful to Bernard Attard for detailed remarks and for sharing with us insights and quotations. We benefitted from comments from Cedric Tille, Adrien Verdelhan, Kim Oosterlinck, and Francois R. Velde. We also thank Ron Alquist for sharing some of his data. Joanna Kinga Slawatyniek, Samuel Segura, Alexander Bandhu, Roxanna Elena Manea, and Adnan Guel provided able research assistance. We both acknowledge financial support from the Swiss National Science Foundation (SNSF)—supported Sinergia project “Macroeconomics of Financial Crises.” Flandreau acknowledges financial support from the Graduate Institute of International and Development Studies and Development, Geneva. The opinions reflected in this work are the authors' and not those of the Bank of England.

Hide All
Accominotti, Olivier, Flandreau, Marc, and Rezzik, Riad. “The Spread of Empire: Clio and the Measurement of Colonial Borrowing Costs.” Economic History Review 64, no. 2 (2011): 385407.
Acharya, Viral V., and Heje Pedersen, Lasse. “Asset Pricing with Liquidity Risk.” Journal of Financial Economics 77, no. 2 (2005): 375410.
Alquist, Ron. “How Important Is Liquidity Risk for Sovereign Bond Risk Premia? Evidence from the London Stock Exchange.” Journal of International Economics 82, no. 2 (2010): 219–29.
Amihud, Yakov, and Mendelson, Haim. “Asset Pricing and the Bid-Ask Spread.” Journal of Financial Economics 17, no. 2 (1986): 223–49.
Amihud, Yakov, and Mendelson, Haim. “Liquidity, Maturity, and the Yields on US Treasury Securities.” Journal of Finance 46, no. 4 (1991): 1411–25.
Attard, Bernard. “The London Stock Exchange and the Colonial Market: The City, Internationalisation and Power.” In The Foundations of Worldwide Economic Integration: Power, Institutions, and Global Markets, 1850–1930 edited by Dejung, Christof and Petersson, Niels P., 89111. New York: Cambridge University Press, 2013.
Attard, Bernard. “Imperial Central Banks? The Bank of England, London & Westminster Bank, and the British Empire before 1914.” In Les banques centrales, la Nation et les Etats edited by Feiertag, O.. Paris: Albin Michel, 2015.
Baden-Powell, Sir George. “Discussion of ‘Australasian Public Finance’.” Proceedings of the Royal Colonial Institute, 1888–89 XX, 255–56. London: Royal Colonial Institute, 1889.
Baster, Albert Stephen James. “A Note on the Colonial Stock Acts and Dominion Borrowing.” Economic History 8 (1933): 602608.
Beber, Alessandro, Brandt, Michael W., and Kavajecz, Kenneth A.. “Flight-to-Quality or Flight-to-Liquidity? Evidence from the Euro-Area Bond Market.” Review of Financial Studies 22, no. 3 (2009): 925–57.
Bekaert, Geert, Harvey, Campbell R., and Lundblad, Christian. “Liquidity and Expected Returns: Lessons from Emerging Markets.” Review of Financial Studies 20, no. 6 (2007): 1783–831.
Bernoth, Kerstin, and Erdogan, Burcu. “Sovereign Bond Yield Spreads: A Time-Varying Coefficient Approach.” Journal of International Money & Finance 31, no. 3 (2011): 639–56.
Bordo, Michael D., and Rockoff, Hugh. “The Gold Standard as a Good Housekeeping Seal of Approval.” Journal of Economic History 56, no. 2 (1996): 389428.
Burdett's Official Intelligence various issues.
Burn, Joseph. “Some Considerations in Reference to the Fall in the Rate of Interest Experienced in the Past, and the Probability of its Continuance.” Journal of the Institute of Actuaries 34, no. 5 (1899): 474509.
Cain, Peter J., and Hopkins, Anthony G.. British Imperialism, 1688–2000 2nd ed. London: Longman, 2001.
Cassis, Youssef. Finance and Financiers in European History 1880–1960. Cambridge: Cambridge University Press, 2002.
Chen, Long, Lesmond, David A., and Wei, Jason. “Corporate Yield Spreads and Bond Liquidity.” Journal of Finance 62, no. 1 (2007): 119–49.
Clare, George. The London Daily Stock and Share List: A Course of Lectures, Delivered at the Institute of Actuaries, Staple Inn Hall, During the Session 1897–98. London: C. & E. Layton, 1898.
Codogno, Lorenzo, Favero, Carlo, and Missale, Alessandro. “Yield Spreads on EMU Government Bonds.” Economic Policy 18, no. 37 (2003): 503–32.
Collins, Michael. “The Banking Crisis of 1878.” Economic History Review 42, no. 4 (1989): 504–27.
Collins, Michael, and Baker, Mae. Commercial Banks and Industrial Finance in England and Wales, 1860–1913. Oxford: Oxford University Press, 2003.
Corwin, Shane A., and Schultz, Paul. “A Simple Way to Estimate Bid-Ask Spreads from Daily High and Low Prices.” Journal of Finance 67, no. 2 (2012): 719–60.
Cotton, William. Everybody's Guide to Money Matters. With a Description of the Various Investments Chiefly Dealt in on the Stock Exchange. London: F. Warne, 1898.
Crabbe, Leland E., and Turner, Christopher M.. “Does the Liquidity of a Debt Issue Increase with its Size? Evidence from the Corporate Bond and Medium-Term Note Markets.” Journal of Finance 50, no. 5 (1995): 1719–34.
Dalziel, Raewyn. The Origins of New Zealand Diplomacy: The Agent-General in London, 1870–1905. Wellington: Victoria University Press, 1975.
Davis, Lance Edwin, and Huttenback, Robert A.. Mammon and the Pursuit of Empire: The Political Economy of British Imperialism, 1860–1912. Cambridge: Cambridge University Press, 1986.
Dick-Nielsen, Jens, Feldhütter, Peter, and Lando, David. “Corporate Bond Liquidity Before and After the Onset of the Subprime Crisis.” Journal of Financial Economics 103, no. 3 (2011): 471–92.
Duguid, Charles. How to Read the Money Article. London: E. Wilson, 1905.
Ellissen, Herbert. Trust Investments. London: William Clowes and Sons, Limited, 1904.
Favero, Carlo, Pagano, Marco, and Von Thadden, Ernst-Ludwig. “How Does Liquidity Affect Government Bond Yields?Journal of Financial and Quantitative Analysis 45, no. 1 (2010): 107–34.
Feinstein, Charles H., and Pollard, Sidney. Studies in Capital Formation in the United Kingdom 1750–1920. Oxford: Oxford University Press, 1988.
Ferguson, Niall, and Schularick, Moritz. “The Empire Effect: The Determinants of Country Risk in the First Age of Globalization, 1880–1913.” Journal of Economic History 66, no. 2 (2006): 283312.
Flandreau, Marc. “Audits, Accounts, and Assessments: Coping with Sovereign Risk under the International Gold Standard, 1871–1913.” In International Financial History in the Twentieth Century: System and Anarchy edited by Flandreau, Marc, Holtfrerich, Carl-Ludwig, and James, Harold. Cambridge: Cambridge University Press, 2003.
Flandreau, Marc. “Home Biases, Nineteenth Century Style.” Journal of the European Economic Association 4, no. 23 (2006): 634–43.
Flandreau, Marc, and Flores, Juan H.. “Bonds and Brands: Foundations of Sovereign Debt Markets, 1820–1830.” Journal of Economic History 69, no. 3 (2009): 646–84.
Flandreau, Marc, Flores, Juan H., Gaillard, Norbert, et al. “The End of Gatekeeping: Underwriters and the Quality of Sovereign Bond Markets, 1815–2007.” In NBER International Seminar on Macroeconomics 2009, 5392. Chicago: University of Chicago Press, 2010.
Flandreau, Marc, Le Cacheux, Jacques, and Zumer, Frédéric. “Stability without a Pact? Lessons from the European Gold Standard, 1880–1914.” Economic Policy 13, no. 26 (1998): 115–62.
Flandreau, Marc, and Zumer, Frédéric. The Making of Global Finance 1880–1913. Paris: OECD Publishing, 2004.
Fleming, Michael J.Measuring Treasury Market Liquidity.” Economic Policy Review 9, no. 3 (2003): 83108.
Fontaine, Jean-Sébastien, and Garcia, René. “Bond Liquidity Premia.” Review of Financial Studies 25, no. 4 (2007): 1207–54.
Friewald, Nils, Jankowitsch, Rainer, and Subrahmanyam, Marti G.. “Illiquidity or Credit Deterioration: A Study of Liquidity in the US Corporate Bond Market During Financial Crises.” Journal of Financial Economics 105, no. 1 (2012): 1836.
Goodhart, Charles AE. The business of banking, 1891–1914. London: Weidenfeld and Nicholson, 1972.
Hall, Alan Ross. The London Capital Market and Australia, 1870–1914. Canberra: Australian National University, 1963.
Jessop, David. “The Colonial Stock Act of 1900: A Symptom of the New Imperialism?The Journal of Imperial and Commonwealth History 4, no. 2 (1976): 154–63.
Krishnamurthy, Arvind. “The Bond/Old-Bond Spread.” Journal of Financial Economics 66, no. 2 (2002): 463506.
Li, Haiato, Wang, Junbo, Wu, Chunchi, et al. “Are Liquidity and Information Risks Priced in the Treasury Bond Market?Journal of Finance 64, no. 1 (2009): 467503.
London Daily Stock and Share List. London: Couchman, 18721899.
London Stock Exchange Daily Official List. London: Couchman, 18991910.
Mauro, Paolo, Sussman, Nathan, and Yafeh, Yishay. “Emerging Market Spreads: Then Versus Now.” Quarterly Journal of Economics 117, no. 2 (2002): 695733.
Mitchener, Kris James, and Weidenmier, Marc D.. “The Baring Crisis and the Great Latin American Meltdown of the 1890s.” Journal of Economic History 68, no. 2 (2008): 462500.
Obstfeld, Maurice, and Taylor, Alan M.. “Sovereign Risk, Credibility and the Gold Standard: 1870–1913 versus 1925–31.” Economic Journal 113, no. 487 (2003): 241–75.
Pástor, ̌Luboš, and Stambaugh, Robert F.. “Liquidity Risk and Expected Stock Returns.” Journal of Political Economy 111, no. 3 (2003): 642–85.
Sayers, Richard Sidney. The Bank of England 1891–1944, Volume 1. Cambridge: Cambridge University Press, 1976.
Schwarz, Krista. “Mind the Gap: Disentangling Credit and Liquidity in Risk Spreads.” Mimeo 2014.
Serle, Geoffrey. Australian Dictionary of Biography, Chapter Westgarth, William (1815–1889). Victoria, Australia: Melbourne University Press, 1976.
Stebbings, Chantal. The Private Trustee in Victorian England. Cambridge: Cambridge University Press, 2002.
Stoll, Hans R.Inferring the Components of the Bid-Ask Spread: Theory and Empirical Tests.” Journal of Finance 44, no. 1 (1989): 115–34.
Sunderland, David. Managing the British Empire. London: Boydell Press, 2004.
Sunderland, David. Financing the Raj. The City of London and Colonial India, 1858–1940. London: Boydell Press, 2013.
Suzuki, Toshio. Japanese Government Loan Issues on the London Capital Market 1870–1913. London: Athlone Press, 1994.
Thomas, W.A. The Provincial Stock Exchanges. London: Frank Cass & Co., 1973.
Urlin, R.D. A Handy Book on the Investment of Trust-funds Under the New Law with the Material Sections of the Trustee Act. London: Effingham and Wilson, 1899.
Veldkamp, Laura L.Media Frenzies in Markets for Financial Information.” American Economic Review 96, no. 3 (2006): 577601.
Westgarth, William. “Australasian Public Finance.” Proceedings of the Royal Colonial Institute, 1888-89 XX 229–71. London: Royal Colonial Institute, 1889a.
Westgarth, William. Half a Century of Australasian Progress. A Personal Retrospect. London: Sampson Low, 1889b.
Westgarth, William. Appendix to the Journals of the House of Representatives, 1889 Session I, B-11. National Library of New Zealand: New Zealand Government, 1889c.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

The Journal of Economic History
  • ISSN: 0022-0507
  • EISSN: 1471-6372
  • URL: /core/journals/journal-of-economic-history
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
Type Description Title
Supplementary materials

Chavaz and Flandreau supplementary material
Online Appendix

 Word (183 KB)
183 KB


Altmetric attention score

Full text views

Total number of HTML views: 74
Total number of PDF views: 380 *
Loading metrics...

Abstract views

Total abstract views: 724 *
Loading metrics...

* Views captured on Cambridge Core between 21st August 2017 - 19th March 2018. This data will be updated every 24 hours.