Working Paper: NBER ID: w18831
Authors: Peter Koudijs
Abstract: What explains short-term fluctuations of stock prices? This paper exploits a natural experiment from the 18th century in which information flows were regularly interrupted for exogenous reasons. English shares were traded on the Amsterdam exchange and news came in on sailboats that were often delayed because of adverse weather conditions. The paper documents that prices responded strongly to boat arrivals, but there was considerable volatility in the absence of news. The evidence suggests that this was largely the result of the revelation of (long-lived) private information and the (transitory) impact of uninformed liquidity trades on intermediaries' risk premia.
Keywords: Asset Price Volatility; Market Efficiency; Natural Experiment; Information Flow
JEL Codes: G14; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| news arrivals (Y70) | price movements (E30) |
| public news (H49) | return variance (C29) |
| private information (D82) | return variance (C29) |
| liquidity shocks (E44) | return variance (C29) |
| absence of news (Y70) | price volatility (G13) |