Political connections and stock returns: evidence from the Boulangist campaign, 1888–1889

The decade of the 1880s was a turbulent period for the French Third Republic. Corruption scandals that discredited republican parties and a lacklustre economic performance after the Paris Bourse crash of 1882 gave rise to widespread public disenchantment with the republican political elites. The rise of the Boulangist movement was the most representative example of this disillusionment. In 1887, Georges Boulanger, an army general and former minister of war, began orchestrating a populist mass campaign against the ruling republicans and the parliamentary regime. His political agitation, supported by a heterogeneous coalition of socialists, radicals and royalists, reached a climax in January 1889, when, after winning a Paris by-election, he had an opportunity to stage acoup d’état, which did not materialise. To understand whether French investors perceived the Boulangist campaign as a real threat to their interests, I use an original dataset of daily stock prices to analyse the effect of the January 1889 by-election on the value of politically connected firms listed on the Paris Bourse. The results show that firms with links to the republican parties experienced positive cumulative abnormal returns after Boulanger's refusal to stage the coup, while there was no effect on firms connected to the royalist parties or with no political ties. These findings suggest that French investors reacted positively to the prospective subsiding of the Boulangist movement.

An Optimal World Portfolio on the Eve of World War I: Was There a Bias to Investing in the New World Rather Than in Europe?

The geographical distributions of French and British foreign investment portfolios differ markedly before World War I. Did French portfolios favor European investments just as British portfolios favored “New World” assets? Should economic rationality have encouraged investors to invest widely in the “New World” rather than in Europe? Combining Modern Portfolio Theory and a new data set comprising assets listed on the Paris and London Stock Exchanges, we show that investing in the “New World” did not yield higher returns than investing in Europe. The “European preference” of the Paris Bourse and, by extension, of French investors was not inefficient.

The Value of the Designated Market Maker

The proliferation of electronic limit order books operating without dealers raises questions regarding the need for intermediaries with affirmative obligations to maintain markets. We develop a simple model of dealer participation and test it using a sample of less liquid firms that trade on the Paris Bourse. The results indicate that firms with designated dealers exhibit better market quality, and that younger firms, smaller firms, and less volatile firms choose a designated dealer. Around the announcement of dealer introduction, stocks experience an average cumulative abnormal return of nearly 5% that is positively correlated with improvements in liquidity. Overall, these findings emphasize the potential benefits of designing better market structures, even within electronic limit order books, and suggest that purely endogenous liquidity provision may not be optimal for all securities.