Before the Civil War, U.S. financial markets operated in an environment far removed from the fast-paced trading floors of today. Auctions are held only twice a day, and newspapers are the main source of trade coverage. Understanding the behavior of these early markets, from the rise of railroads to the impact of the Panic of 1837, helps reveal the risks and opportunities that shape the foundation of today’s financial system.

This historical narrative reveals lessons that are crucial for modern analysts to cope with changing circumstances. This is the last article in a three-part series (Part 1, Part 2).

turn back time

When we go back to before the Civil War, the stock market looked a lot different than it does today. There is exchange trading, but there is no dedicated person on duty, and the trading is not continuous. Instead, auctions are held twice daily. List the names of listed stocks in order. The announcer stops to see if the bid or ask price, or more than one, is called out, and if there is a match, it is recorded as a transaction.

In this day and age, most stocks are not traded every day. When the quotes stop shouting or there are no quotes, the announcer continues searching down the list for the next stock. In many cases, the bid and ask price (if there is one) are not matched in the auction. Instead, the bid and ask prices serve only as a starting point, an anchor for setting expectations, with actual transactions later taking place on the street. The transactions may have been reported in newspapers but were not found in New York Stock Exchange records.

Fortunately for historical analysis, stock trading yes Newspapers reported it from the beginning. These sections, sometimes called “stock prices,” are always newsworthy. In fact, a few years ago, a team led by Richard Sylla of New York University was able to compile a massive archive of pre-Civil War newspaper quotes. You might be surprised to find out how many stocks have trading records dating back to the War of 1812 or earlier. Until 1800, there were only a handful of listed stocks.

New York is not a financial center

Another key point of difference: The New York Stock Exchange did not achieve national dominance until after the 1840s. To obtain reasonable coverage of total market capitalization, the stock market index for that period must include stocks traded in Boston, Philadelphia, and Baltimore. In fact, at the beginning of this period, Philadelphia was the financial center of the United States.

New York did not gain the lead until the Panic of 1837, and the consolidation of its lead was still in progress during the early years of the Civil War. Throughout the 1860s, rival exchanges existed in New York City and other cities. The true dominance of the New York Stock Exchange awaited after the war, uniting the nation through railroads, telegraphs, and stock quotes.

The non-dominance of New York was not well understood before the work of Richard Serra. Jeremy Siegel’s seminal compilation of stock returns for 1802 used only stocks that traded in New York during most of the prewar period. The same is true for the 1815 Goetzmann, Ibbotson, and Peng collection.

I think using only New York-listed stocks introduces considerable survivorship bias. There’s a reason the New York Stock Exchange ended up dominating the country. The economic, political and financial conditions in New York City are more conducive to building wealth through investment than elsewhere. I found that Philadelphia and Baltimore had much lower stock returns and more failures and bankruptcies, leading to substantially lower stock returns that I reported in the New York Times paper. financial analysts magazinerelative to the report in Jeremy Siegel’s book, long term stocks.

Despite this, the U.S. stock market has had a good history with multiple stocks listed for trading starting in 1793. For stocks, this period can be divided into two periods, with the Panic of 1837 as the pivot.

Panic from 1793 to 1837

As of January 1793 I could find a bank trading in New York, Boston, and Philadelphia, and 1^Yingshi Bank of America (traded on all exchanges), each has price records as well as information on share volume and dividends. There are quotes in the Sylla database before 1793, including quotes during the first market panic in 1792, but I was unable to extract price and dividend records before January 1793 that I considered trustworthy.

In the first dozen years, almost all stock market capital was comprised of commercial banks. There are no other trading desks. By the War of 1812, there were several insurance companies and a few turnpike stocks, but banks still dominated. After the war, marine and fire insurance companies proliferated, especially in New York, so that for the first time the market included two roughly equally weighted sectors: if you put bank stocks and insurance stocks together, there might be only one sector, financials. The total market capitalization of the financial services industry far exceeds that of the few transportation and manufacturing stocks traded before 1830.

In 1830, railroad stocks began trading in New York and soon dominated trading volume. Even small railroads have capital comparable to that of large banks. With the onset of the Panic of 1837, the railroad’s general ceiling was approaching that of the insurance industry. When the Great Depression ended in 1843, many banks and insurance companies had failed, and the still-expanding railroad sector had about the same market capitalization as the entire financial trading sector.

By the end of the period, banks and insurance companies had moved to over-the-counter trading. From 1845 to the end of the century, the U.S. stock market (measured by market capitalization, with an emphasis on the New York Stock Exchange) became almost entirely a railroad stock market.

From the Panic of 1837 to the Civil War

The railroad sector continued to expand until the depression of the fall of 1857—a severe but very brief stock market crash, just like October 1987. With the outbreak of the civil war, the stronger railways gradually recovered, but the prices of the weaker roads continued to fall.

At its lowest, stocks that sold for $100 a few years ago were trading in the single digits. Broad suspension of dividends. My stock real total return index reached a generation low in the late 1850s during the two- and three-decade windows.

During the Civil War, the value of Northern railroad stocks soared. Generous dividends of 8% to 10% would soon be restored as income surged to meet the demands of wartime mobilization. Southern railroads rarely traded on the North’s major stock exchanges, and most were destroyed. Analysts should realize that, as currently counted, the historical record for the 1860s includes only Victory Union stock. During the war, a large number of bank and railroad stocks registered in Confederate states mostly fell to zero, which is not part of the history of U.S. stock market returns.

bond

Alexander Hamilton created the U.S. Treasury market in the early 1790s by paying off Revolutionary War debts. I have data on Treasury bond returns since January 1793 to compare with stocks.

However, bond market records are again more complex than stock market records. For example, Hamilton’s bonds have no stated maturity, so the yield to maturity cannot be calculated.

Most notably, in early 1835, President Andrew Jackson paid off the remaining U.S. debt. It was not until late 1842 that long-term Treasury bonds (“financing debt” as the parlance of the time was called) could be purchased.

Beginning with Sidney Homer interest rate historyand continuing the work of Jeremy Siegel, the temporary disappearance of the national debt has been addressed by replacing it with some other type of government bond (state or municipal bond). There are records in the Sylla archives for more than a dozen municipal issuers, beginning in the late 1820s.

Unfortunately, during the Great Depression following the Panic of 1837, several states defaulted, making the idea that “government bonds” represented risk-free, or at least default-free, instruments suitable as foils scoffed at. risk.

Before the panic, issuers that eventually defaulted (e.g., Pennsylvania and Maryland) were indistinguishable from issuers that went through the depression without incident (Boston, Philadelphia).

Historians who need to back up stocks can use hindsight to select municipal issuers that did not default; but investors at the time did not enjoy this sense of hindsight, making any “equity risk” explanation false. Long story short: For much of the early period, it was questionable whether government bonds were less risky than stocks.

Finally, the corporate bond market did not form until just before the Civil War. It suddenly appeared in the mid-1850s. By the end of the Civil War, the corporate bond market had broadly achieved its modern contours, with individual bonds priced based on perceived credit quality and new regular issuance. Two caveats: Most corporate bonds come from a single industry: railroads. The shortest bonds issued were typically 10-year bonds, with 20- and 30-year bonds more common until the 1880s, when 40-, 50-, and 100-year bonds began to proliferate.

focus

I hope you’ve gleaned some tidbits from this series – a quick look at 230 years of U.S. market history. As you read other historical accounts, keep the following points in mind.

1. For the stock market, the civil war was a critical turning point. Since then, this can be said to be a continuous market record to date. Before that, the stock market looked very different.
2. For bonds, World War I marked the dividing line between the essentially modern Treasury market and an entirely different market. Remember, there was no Fed before 1913. Instead, the United States made two failed attempts to establish a central bank.^Yingshi and 2^ND Of the banks in the United States, one was closed by executive order in 1811 and another was destroyed by executive order in the 1830s.
3. Taking a two-century perspective, there is no reason to think that the stock and bond returns achieved in recent decades will prevail throughout the historical record. Vastly different market structures and compositions make it possible for stocks, and the returns on stocks relative to bonds, to have very different returns over more distant decades.
4. The purpose of historical studies is not to obtain a larger sample size to more accurately estimate average expected returns. Rather, the aim is to understand how circumstances were different in the past in order to better understand the range of possibilities in the future.

source

1. A spreadsheet containing information on Richard Sylla can be downloaded from EH.net:[Thesearequotesonlybutincludebondsandstocks[Thesearepricequotesonlybutincludebondsaswellasstocks[這些只是報價，但包括債券和股票。[Thesearepricequotesonlybutincludebondsaswellasstocks
2. The online appendix to my paper at FAJ contains the Sylla Guide and other historical compilations, as well as a link to my detailed spreadsheet where you can find the individual stocks I used (selected from those with a good track record in Sylla), and their Number of shares and dividend payments (the latter two are not included in Sylla).
3. The Investment Analyst’s Guide: Using Historical Market Data
4. An investment analyst’s guide: Taking a longer-term view of U.S. financial markets