Wars, inflation and stock market returns in France, 1870-1945

摘要

This article undertakes a comparative study of the effects of three wars upon the French stock market. Periods of war are highly turbulent financial times and trigger multiple factors to act upon stock prices. The article presents evidence suggesting that stock price behaviour is influenced by the specific way each war is financed. Financed solely by regular long-term debt, the Franco-Prussian War exhibited stock prices that only reflected real activity. On the other hand, both world wars were partially financed by monetary creation but differed with regard to the extent of financial repression. In the case of World War II, monetary creation within a closed repressed economy led to a paradoxical, short-lived increase in stock prices. The article also examines how war affected the characteristics of the market. The Franco-Prussian War caused a durable high interest rate; World War I smoothed out most of the public services firms and increased volatility; whilst World War II affected the components of the stock market. Overall, mainly due to market values being destroyed during the world wars, the importance of the stock market in the economy decreased.