Working Paper: CEPR ID: DP14826
Authors: Quocanh Do; Roberto Galbiati; Benjamin Marx; Miguel Angel Ortiz Serrano
Abstract: This paper studies discrimination in financial markets in the context of the "Dreyfus Affair" in 19th century France. We analyze the market performance of firms with Jewish board members. Building on empirical evidence and a model with antisemitic and unbiased agents, we show how investors betting on firms with Jewish connections earned higher returns during the media campaign organized to rehabilitate Dreyfus, the Jewish officer at the center of the Affair. Our paper provides novel evidence that discrimination can affect stock prices and create rents for some market participants. While these rents may attract betting against discriminators, the uncertainty surrounding discriminatory beliefs can limit the extent of arbitrage and allow discrimination to survive in the long run.
Keywords: antisemitism; financial markets; discrimination
JEL Codes: J15; J71; N23; G14; G41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Dreyfus's military degradation (Y40) | Negative cumulative abnormal returns for firms with Jewish board members (G34) |
| Publication of 'J'accuse' (Y30) | Negative but statistically insignificant effect on CARs for firms with Jewish board members (G34) |
| Media campaign initiated by 'J'accuse' (D74) | Higher returns and faster growth in market valuation for Jewish-connected firms (G24) |
| Appointment of pro-Dreyfus cabinet and pardon of Dreyfus (D73) | Positive cumulative abnormal returns for firms with Jewish connections (N23) |
| Increased media coverage of pro-Dreyfus sentiments (Y40) | Higher returns for Jewish-connected firms (G24) |
| Increased media coverage of anti-Dreyfus sentiments (D73) | Lower returns for Jewish-connected firms (G39) |