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“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.

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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.



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“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)


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