FINANCIAL MARKET HISTORY REFLECTIONS ON THE PAST FOR INVESTORS TODAY Edited by David Chambers and Elroy Dimson FINANCIAL MARKET HISTORY REFLECTIONS ON THE PAST FOR INVESTORS TODAY Edited by David Chambers and Elroy Dimson Statement of Purpose The CFA Institute Research Foundation is a not-for-profit organization established to promote the development and dissemination of relevant research for investment practitioners worldwide. Neither the Research Foundation, CFA Institute, nor the publication’s edi- torial staff is responsible for facts and opinions presented in this publi- cation. This publication reflects the views of the author(s) and does not represent the official views of the CFA Institute Research Foundation. The CFA Institute Research Foundation and the Research Foundation logo are trademarks owned by The CFA Institute Research Foundation. CFA®, Chartered Financial Analyst®, AIMR-PPS®, and GIPS® are just a few of the trademarks owned by CFA Institute. To view a list of CFA Institute trademarks and the Guide for the Use of CFA Institute Marks, please visit our website at www.cfainstitute.org. © 2016 The CFA Institute Research Foundation. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the copyright holder. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Cover Image Photo Credit: bunhill/Getty Images ISBN 978-1-944960-13-1 December 2016 Editorial Staff Abby Farson Pratt Julia Mackesson, PMP Assistant Editor Manager, Publishing, Standards and Advocacy Anh Pham Publishing Technology Specialist Biographies Olivier Accominotti is associate professor of economic history at the London School of Economics and Political Science and an affiliate at the Centre for Economic Policy Research. He is a specialist in international finan- cial history and has published extensively in this area. Professor Accominotti is also a member of the editorial board of Financial History Review, and his current projects focus on currency markets and the international propaga- tion of financial crises. He holds a PhD in economics from Sciences Po Paris and has held postdoctoral or visiting positions at Princeton University; the University of California, Berkeley; the European University Institute; and the Bank of France. Jan Annaert is professor of finance at the University of Antwerp and at the Antwerp Management School. He is chairman of the Study Centre on Stock Exchanges and Enterprises (SCOB), the university’s research center for financial history. Professor Annaert also serves as independent director on the board of mutual funds and is an external member of the Pricing and Valuation Committee of KBC Asset Management. His teaching and research interests include portfolio theory, asset pricing, financial risk management, and financial history. Professor Annaert has published his research in a vari- ety of publications, including Cliometrica, Explorations in Economic History, Financial History Review, the Journal of Banking and Finance, and the Journal of International Money and Finance. Stephen J. Brown joined Monash Business School as professor of finance in January 2016, transitioning to emeritus status at New York University (NYU) Stern School of Business. Before joining NYU in 1986, Professor Brown worked at Bell Telephone Laboratories, where he spent time as dis- trict manager at AT&T Pension Fund, as well as at Yale University. He has published widely in a range of high-quality journals and is the author of five books. Professor Brown has recently been appointed executive editor of the Financial Analysts Journal®. He graduated from Monash University in 1971 and earned an MBA and a PhD from the University of Chicago in 1976. Frans Buelens is senior researcher at the Study Centre on Stock Exchanges and Enterprises (SCOB) at the University of Antwerp. He is responsible for supervising the work on the digitization of the Brussels and Antwerp Stock Exchanges. Dr. Buelens is the author (and coauthor) of sev- eral books, including Congo 1885–1960 and Beurzen van België: een geschiedenis van het beurswezen, 1801–1867 (Stock Exchanges of Belgium: A History of Stock Exchange Life). He has published in Economic History Review, Explorations in © 2016 CFA Institute Research Foundation. All rights reserved. iii Financial Market History Economic History, the Journal of European Economic History, Financial History Review, Cliometrics, and other journals. Carsten Burhop is professor of economic and social history at the University of Vienna and a research affiliate at the Max Planck Institute for Research on Collective Goods in Bonn, Germany. His research focuses on many aspects of economic and business history, including the history of stock markets, financial institutions, corporate governance, and the management of innovation. Professor Burhop has published in the Journal of Economic History, Business History Review, European Review of Economic History, German Economic Review, and Schmalenbach Business Review. David Chambers is a reader in finance, a Keynes Fellow, and academic director of the Centre for Endowment Asset Management at Cambridge Judge Business School. His research interests span asset management and financial history, and he has published in theJournal of Finance, the Journal of Financial and Quantitative Analysis, the Journal of Economic Perspectives, the Journal of Economic History, Economic History Review, Explorations in Economic History, the Financial Analysts Journal, and the Journal of Portfolio Management. Prior to returning to full-time education in 2001, Dr. Chambers worked for 20 years in investment banking and asset management at Barings, Hotchkis & Wiley, and Merrill Lynch. He sits on the editorial board of the Financial Analysts Journal. Elroy Dimson is chairman of the Centre for Endowment Asset Management at Cambridge Judge Business School, emeritus professor of finance at London Business School, and adviser to the board of FTSE International. He previously served London Business School in a variety of senior positions and the Norwegian Government Pension Fund Global as chairman of the Strategy Council. Dr. Dimson is coauthor of Triumph of the Optimists and has published in a number of journals, including the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, the Journal of Business, the Journal of Portfolio Management, and the Financial Analysts Journal, where he serves as a member of the Advisory Council. Barry Eichengreen is George C. Pardee and Helen N. Pardee Professor of Economics at the University of California, Berkeley, a research associate of the National Bureau of Economic Research, and a research fellow of the Centre for Economic Policy Research. He is a fel- low of the American Academy of Arts and Sciences and a member of the Council on Foreign Relations. Caroline Fohlin is a professor of economics at Emory University. She has published extensively on the history of financial markets, institutions, and systems, including two monographs: Finance Capitalism and Germany’s Rise iv © 2016 CFA Institute Research Foundation. All rights reserved. Biographies to Industrial Power and Mobilizing Money: How the World’s Richest Nations Financed Industrial Growth. Professor Fohlin has recently completed the first comprehensive high-frequency transaction and quote database for the NYSE for the period 1900–1925. She holds the position of Distinguished Visiting Professor, Economics, at Emory University. Professor Fohlin holds a BS in mathematics and quantitative economics from Tufts University and a PhD in economics from the University of California, Berkeley. William N. Goetzmann is the Edwin J. Beinecke Professor of Finance and Management Studies at Yale School of Management. His research topics include asset pricing, the equity risk premium, arbitrage strategies, selecting investment managers, global investing, and financial history. Professor Goetzmann’s work has been featured in most of the major finan- cial news publications and his academic research has been published in all of the major academic finance journals. His current work focuses on endow- ments, financial history, operational risk, securitization, credit risk, and behavioral finance. Professor Goetzmann is the director of the International Center for Finance at the Yale School of Management, where he has been since 1994. Previously, he taught investments and real estate at Columbia Business School. Charles Goodhart, CBE, FBA, is emeritus professor of banking and finance with the Financial Markets Group at the London School of Economics (LSE), having previously been its deputy director. Until his retire- ment in 2002, he had served as the Norman Sosnow Professor of Banking and Finance at LSE since 1985. Dr. Goodhart also worked at the Bank of England for 17 years as a monetary adviser, becoming a chief adviser in 1980. In 1997, he was appointed one of the outside independent members of the Bank of England’s new Monetary Policy Committee. Dr. Goodhart also taught at Cambridge University. Leslie Hannah is visiting