Understanding the historical background of the financial market is important for investment experts trying to lower information based on today's complex landscape. This survey of historical data dating back for more than 230 years has revealed how the market evolves, and how continuous and shape investment opportunities change.
From the advantage of the 19th century railway to the emergence of multiple sector indexes, this historic lens offers very valuable insights to analysts that handle old data. By integrating this knowledge into modern strategies, experts can navigate market cycles more appropriately, understand long -term trends, and improve their investment approach.
This post -Part II, a three -part series, is planning to handle old data and is intended for investment analysts that need to know more about historical backgrounds. My first post has completely dated and defined the modern era, followed by modern roots in the 1920s. This post will further push history. The audience is planning to handle this old data again, and is an analyst who needs to know more about historical context.
Continuousness and change
Only several factors in today's financial markets can be preserved since the 1790s.
- Joint stock liability companies have been available by US investors since then. The shareholder was always the remaining man, a junior of the capital structure, and was paid in the end and a solid dissolution.
- The government's bond market has been continuously operated by only subsevberin issues (state and city bonds) since the 1790s.
In short, you can build a US stock and bond return series extended more than 230 years ago. Despite the decades of effort, these data must be admitted that it is not as good as data since 1925. Nevertheless, I think this record is enough for many purposes.
It would be desirable to work backwards again to follow how the stock market and the bond market in the 1790s and the bond market have evolved toward modern times.
From civil war to World War I
If you read sufficient historical analysis created in Wall Street, “this was the best stock since 1871 …” or “this was the best.” [worst] Return to see for the past 150 years. Certainly, these phrases are not more frequent than hearing “since 1926”, but you will find them.
What happened in 1871? there is nothing. As in 1926, it is an arbitrary date set according to the needs and preferences of later data compilers, not a real historical point.
The true point of the early modern era was the end of the Civil War. In addition to being a famous hinge point in history, we since 1865 Wall Street Journal And a Moodies Information on manuals and stock prices at the same time, the number of shares, the number of shares, dividends, revenue, bond prices, coupons, issuance, maturity, and conditions. That source, Commercial and financial chronicleThe Federal Preparatory System is now available online.
stock
The statement fixed in 1871 usually uses data from Robert Siller's website. Shiller reproduces the price, dividends, and revenue data compiled by Alfred Cowles in the 1930s. Cowles had data from 1917 already edited by Standard & Poor's predecessor, Standard Statistics. His unique contribution was to push the stock record back for 50 years.
What did Cowles find at the beginning of his data in 1871?
- The New York Stock Exchange had already achieved the dominance of the nation. Cowles felt that stock transactions at local exchanges and counters could be safely ignored (at that time, it was described as a “curb” transaction). He discovered more than 80 % market capitalization in NYSE. I found that this was the same ratio as the US market capitalization represented by the S & P 500 at the time.
- However, there was one important difference. A single sector dominated NYSE in this era: railways initially accounted for about 90 % of the NYSE caps and still nearly 75 % by 1900.
- In the 1880s, gas and power companies began to appear in the Cowles record, and there were industrialists since 1890. industry The average date is until 1896.
In fact, that's why Cowles postponed the start date of 1871. He has been committed to the construction of a multi -section index, as there is a possibility of standard statistics since 1917. Only in 1871, he said, “It can be regarded as utility. In his case, it contained a canal and an” industrial person. ” This means coal mine and shipping service.
Today's analysts should not be deceived. For all intentions and purposes, the stock index of Syrah Cowules is a single sector index of railway, until the sector began to grow and approached modern diversity in World War I. 。
Of course, a variety of sector companies have been around for a long time before 1900, but these companies did not trade or trade in NYSE.
In fact, banks and financial service companies have stopped trading NYSE before the Civil War. This sector lacks the Cowles index throughout.
The final difference is about the number of available shares. At first, a share of less than 50 shares was on the Cowles index. Until 1899, there were no 100 stocks, but 200 counts were not achieved until World War I.
Nevertheless, the difference in the US stock market in the 1870s, including the concentration of count and sector aside and with the market of the 1920s, is more substantially larger than the difference in the 1920s separated from the 1920s. Not. It has meaningful continuity.
With these warnings in mind, analysts can add Cowles-shiller data to data after 1925 and build a monthly stake return for more than 150 years. Price awards are calculated as total revenue, dividend yield, and price income rate, returns, and Syrah can provide inflation measurements for calculating actual returns.
Bond
it's complicated.
In parallel with what you can do for stocks, you cannot build a 150 -year continuous record of the Ministry of Finance. Rather, there are the Ministry of Finance, which has a transaction record through the period between the Civil War and World War I, but the account is false in multiple points and may be interpreted by mistake.
And, unless the report contains a wealth of footnotes, you shouldn't put much religion on the 150 -year chart of the bond return you encounter.
The caution is also about the historical description of 60/40 blends and other balanced stock/bond mix. Annus Horribilis 2022. The bond component of a well -balanced portfolio analysis goes back beyond World War I is suspicious. *
*If it consists only of long corporate bonds, the record is good for the civil war. The problem before World War I is a record of government bonds.
In fact, I can't comply with 19 explanationsthh Century US has linked the bond market to this series of posts. Thorough papers on the recent papers of the bond market from 1793 to 1925 “Introducing the new monthly series of US government bonds for 1793 -2023” and what kind of government bond series can be made We provide discussions. It is built.
Repeat and emphasize what was not in the bond market before World War I.
- There were no invoices from the Ministry of Finance, no risk rates. There are records of short -term papers up to 1830, but they are not issued by the Ministry of Finance, and they are certainly not a risk of risk. Therefore, Jeremy Seagel's historical record “invoice” is “Division and gender furniture shops, dry goods, hardware, shoes, food, flooring, cotton, silk, and wool products. It represents the price of the paper. “
- Since the government ran a large surplus, there were only long financial bonds issued at 20 to 30 years since around 1877.
- By 1900, the financial market was not very liquid, and individual bonds were no longer traded every month. Bonds were trapped in the Ministry of Finance to secure the distribution of banknotes of national banks. See my paper for the explanation. Only after the free bonds have come to mind in 1917, the dawn of the modern financial market is a deep flowing market guaranteed by the World Hegemon, and can be functioned as an anchor of bonds.
In conclusion, there are two significant arguments pointed out about the available bond records before World War I.
- Don't accept Jeremy Siegel's bonds from 1871 to 1920.
- During this period, do not use Robert Shiller's “GS-10” series.
These return series have the same source as both: Yield series edited by Sydney Homer in a 1963 book History of interest rates。 Not known to Sigel, Syrah, and probably Homer, but as explained in my paper, the source of the series is very problematic.
Don't go there.
In the last post of this series, we will look at the US market before the Civil War.
sauce
- Commercial and financial chronicle I'm in the Fraser [https://fraser.stlouisfed.org/title/commercial-financial-chronicle-1339?browse=1860s]。 Free, online, and searchable (within OCR restrictions).
- Syrah data is as follows [http://www.econ.yale.edu/~shiller/data.htm]。 The monthly value is the average of four or five weeks a month, and the volatility is restricted again.
- Cowles books that explain his data collection and index construction activities are available online [https://som.yale.edu/centers/international-center-for-finance/data/historical-financial-research-data/cowlesdata]
Please read Part I
Please read Part III
