We are delighted to be hosting three speakers discussing different aspects of risk and uncertainty in premodern capital markets.
Daniel Bogart (UC Irvine) and Marco Del Angel (California State University Los Angeles): Policy Uncertainty and Capital Markets: Evidence from the English East India Company
The goal of this study is to investigate the level of uncertainty facing the English East India Company and the implications of uncertainty for voyage-level investments between 1690 and 1830. During this tumultuous period, there was substantial variation in government policy towards the Company. There were also substantial changes in geo-political risk as England fought numerous wars with a global reach. While the Company’s colonial strategies shaped views of its business activities, our working hypothesis is that policy shocks and warfare increased uncertainty for the Company, as reflected in the pricing of Company stocks. We also hypothesize that policy shocks and warfare ultimately lowered investment through the channel of increased uncertainty.
The study uses new series of EIC ship-level sailing decisions and published series on stock prices. We examine whether uncertainty, measured by the volatility of stock returns had an effect on EIC’s decision to send trading voyages to Asia. Financing of voyages required irreversible investments to get ships ready to depart, such as purchases of precious metals to settle accounts or funds to buy commodities. Thus, trading voyages provide a useful measure of EIC’s investment.
Using a discrete time duration model, we find that higher levels of uncertainty decreased the probability of sending trading voyages to Asia. Also, we examine potential heterogeneous effects and the impact of extreme volatility events, and find that uncertainty had larger negative effects during the optimal sailing season of the Indian Ocean. These findings are consistent with the historical narrative that political and economic uncertainty influenced EIC’s trade environment. The results provide evidence of the effect of political and institutional shocks on stock market valuations and uncertainty that affect economic growth.
Lewis Wade (Exeter): Lloyd’s of Paris? Colbertianism, the Royal Insurance Chamber and the Parisian Capital Market, 1668-86
Jean-Baptiste Colbert, Louis XIV’s eminent minister, has long been famous for his commercial and maritime reforms during the grand siècle. Through his reforming agenda, Colbert sought to wield the power of the state to establish French economic hegemony within Europe. But one distinctive reform has been widely ignored up to now: despite targeted interventions into insurance practices by Colbert during his tenure, the French insurance industry never took off before 1750, long after the English and Dutch insurance industries had reached maturity.
This paper studies these interventions through analysing the Royal Insurance Chamber, established in Paris under the auspices of Colbert in 1668. Drawing on the remarkable records kept by the institution – alongside a dataset of over 4000 of its insurance policies – I explore its rise in 1668 and its activities up to 1673. Colbert established the Chamber with the intention of addressing several market deficiencies – especially in the mobilisation of capital – but ultimately came up short with the onset of the Dutch War in 1672. A jurisdictional war between the city’s admiralty and merchant courts – compounded by the Chamber’s own weaknesses in addressing conflicts – irreparably tarnished the institution’s reputation. The Chamber therefore serves as a valuable case study for analysing institutional ‘efficiency’, vindicating Sheilagh Ogilvie’s insights on the need to study institutions within their broader political and economic context. Moreover, its rise and fall draws attention to the crucial role that the state could play in the making or breaking of early modern insurance markets.
, this seminar is free
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