Annual EBHS Conference, 39th Annual Economic and Business History Society Conference

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Between Macro and Finance: The French Reports Market at the Outbreak of WW1
Stefano Ungaro

Last modified: 2014-03-10


During the so-called Belle Epoque, consistent volumes representing one third of French GDP were negotiated in the Parisian reports market, a segment of the money market that took place inside the Paris Bourse, and that can be seen as the equivalent of the present repo market.

This market, as well as markets for all forward operations, was closed down during WW1. At its reopening, at the beginning of 1920, a major change took place. Before the war more than two hundred prices were negotiated, one for each report - linked to its own collateral. After the war one only rate was done for all the market: a rate in tight relationship with the rate of money market outside the Bourse.

In this paper I investigate the causes and consequences of this “collapse” from more than two hundred prices to one only. Original archive research and quantitative analysis show that 1) The decision to unify the market by negotiating one only price was not the institutionalization of a movement already happening before the war, as preceding literature suggests, but was a complete shock; and 2) That the reasons of this decision are more linked to an adaptation of Parisian stock brokers to exogenous changes in macroeconomic conditions (that is, end of “classical” Gold-Exchange Standard), in order to reduce their risk and increase Bourse stability, than to microstructure reasons only aimed at controlling counterparty or idiosyncratic risks.