• How the Victorian Black Friday Shaped Modern Central Banking
    • ‘On 11 May, 1866, a hugely important financial institution in the City – Overend Gurney – went bust. The newspapers – from The Times to The Observer – described it as “Black Friday” due to the ensuing panic. Here’s a somewhat understated quote from that Sunday’s edition of The Observer: “The great center of banking business, Lombard-street [sic] and its approaches, was occupied during the day by crowds of persons who lingered in the neighbourhood of the principal banking and discount houses, rendering those thoroughfares all but impassable.”’
  • An Analysis of Asset Pricing Models Using Out of Sample Data from The NYSE: 1900-1925
    • ‘This paper uses financial data from 1900 to 1925 to run out of sample tests of different asset pricing models. We find that we cannot reject the strong predictions of Sharpe’s (1964) CAPM, but that there are portfolios with significant alphas that violate Sharpe’s CAPM weak predictions. The Black (1972) version of the CAPM performs worse than Sharpe’s counterpart. We also test the Fama French Carhart framework, and find that only the market and size factors work as with modern data. The value factor is statistically insignificant, and the momentum factor, while significant, has the opposite sign of the modern momentum factor.’
  • U.S. Banking Panics and the Credit Channel: Evidence from 1870-1904
    • ‘The empirical study of the effect of banking panics on the economy has traditionally been difficult due to the lack of adequate data on output during the major part of the 19th and early 20th centuries. This paper proposes an alternative approach by looking at the business activity of the banking sector. Using a newly digitized dataset on National Banks resources and liabilities, I argue that distortions to the normal activity of the banking sector are a good proxy for the impact of panics on the economy. Additionally, I propose a novel Instrumental Variables approach for identifying the effects of banking panics through the exogenous drops in deposits induced by bank runs. The results show a temporary but large effect of panics on lending activity of approximately 10 p.p. (on impact) and an average duration of one year.’
  • Volatility Clustering and the Bid-Ask Spread: Exchange Rate Behavior in Early Renaissance Florence
    • ‘This paper investigates the nature and behavior of the domestic (local) currency market that existed in Florence (Italy) during the late 14th and early 15th centuries (a.k.a. Early Renaissance). We find that the extant volatility and microstructure models developed for modern asset markets are able to describe the statistical volatility properties observed for the denaro-florin exchange rate. Volatility is clustered and is related to the bid-ask spread. This supports the notion that, although there are huge social, industrial and technological differences between capitalism then and now, individuals trading financial assets in an organized venue behave in a similar manner.’

Once Upon a Time in the Banking Sector: Historical Insights into Banking Competition