Four Centuries of Finance
With Professor Peter Koudijs, Erasmus School of Economics, Rotterdam, June 9 - 14, 2022, at Swedish House of Finance
Finance has been around for centuries. Studying its fascinating history is not only interesting in its own right, it can also provide unique opportunities to (a) analyze different settings that are closer to the simplified settings of our theoretical models than today’s situation, (b) take a long term perspective on important questions, and (c) benefit from natural experiments that allow for causal inference. This mini-PhD course features all these three elements. We will discuss papers at the research frontier. Starting point is economic theory and we will discuss how historical research can provide fundamental insights into the underlying models that underpin financial-economic thinking today.
Textbook and supplementary readings
We will principally rely on the original academic papers that are easy to obtain through Google scholar, etc.
Each student is expected to present at least one paper in class. Presentations should focus on the papers’ main point and argument. Students will have to explain the story of the paper in their own words and critically assess the storyline, identification strategy, and contribution of the paper. Please plan to present for approximately 20 minutes. We will plan for 10 additional minutes of questions and clarifications during the presentation (seminar style).
The course will not feature a final exam. Instead, students are expected to write a research proposal. This assignment is meant to help students develop their own research interests, but projects should be related to the topics in class, or to financial history more broadly. The research proposal should describe an empirical project embedded in economic theory. The proposal should focus on the underlying conceptual framework, the development of testable hypotheses, the research design, and the available data. The proposal does not have to feature any empirical results, although some data work as a proof of concept is advisable.
The proposal should be limited to 3 pages (exclusive of tables/figure).
Deadline: July 4
The final grade will be determined by a mixture of 33% final project, 33% class participation, and 33% class presentation.
(papers marked by ‘*’ are required reading)
Session 1a - Introduction; Asset prices in the long run
1) Campbell, John Y. Financial decisions and markets: a course in asset pricing. Princeton
University Press, 2017, Chapter 5.3 and 5.4
2) *Golez, Benjamin, and Peter Koudijs. "Four centuries of return predictability." Journal of Financial Economics 127, no. 2 (2018): 248-263. Golez, Benjamin, and Peter Koudijs.
"Equity duration and predictability." Available at SSRN 3519246 (2020).*
3) Golez, Benjamin, and Peter Koudijs. "Equity duration and predictability." Available at SSRN 3519246 (2020).
1) Baltussen, Guido, Bart van Vliet, and Pim Van Vliet. "The Cross-Section of Stock Returns before 1926 (and beyond)." Available at SSRN 3969743 (2022).
Session 1b - Information in markets
1) Back, Kerry. Asset pricing and portfolio choice theory. Oxford University Press, 2010,
2) Campbell, John Y. Financial decisions and markets: a course in asset pricing. Princeton University Press, 2017, Chapter 12.1 and 12.2
3) Koudijs, Peter (2016). “The boats that did not sail: Asset price volatility in a natural
experiment.” The Journal of Finance 71, no. 3: 1185-1226.
4) *Koudijs, Peter (2015), “Those who know most: Insider Trading in 18th c. Amsterdam”, Journal of Political Economy 123-6, pp. 1356 – 1409*
1) Steinwender, Claudia (2017). "The Real Effects of Information Frictions:" When the States and the
Kingdom became United"." American Economic Review.
Session 2a - Limited liability and firms
1) Hart, Oliver. "Economist's Perspective on the Theory of the Firm, An." Colum. L. Rev. 89
2) Guinnane, Timothy, Ron Harris, Naomi R. Lamoreaux, and Jean-Laurent Rosenthal. "Putting the Corporation in its Place." Enterprise & Society 8, no. 3 (2007): 687-729.
3) Winton, Andrew. "Limitation of Liability and the Ownership Structure of the Firm." The
Journal of Finance 48, no. 2 (1993): 487-512.
4) *Acheson, Graeme G., Charles R. Hickson, and John D. Turner. "Does limited liability
matter? Evidence from nineteenth-century British banking." Review of Law & Economics 6,
no. 2 (2010): 247-273.*
1) Koudijs, Peter, and Laura Salisbury. "Limited liability and investment: Evidence from changes in marital property laws in the US South, 1840–1850." Journal of Financial Economics (2020).
Session 2b - Limited liability and banks
1) *Koudijs, Peter, Laura Salisbury, and Gurpal Sran. “For Richer, for Poorer: Bankers'
Liability and Risk-taking in New England, 1867-1880.” Journal of Finance (2021)*
1) Aldunate, Felipe, Dirk Jenter, Arthur G. Korteweg, and Peter Koudijs. "Shareholder Liability
and Bank Failure." Available at SSRN (2019)
Session 3a - Beliefs
1) Miller, Edward M. (1977), “Risk, uncertainty, and Divergence of Opinion”, Journal of
Finance 32(4): 1151-1168
2) Back, Kerry. Asset pricing and portfolio choice theory. Oxford University Press, 2010,
3) Campbell, John Y. Financial decisions and markets: a course in asset pricing. Princeton
University Press, 2017, Chapter 11.4
4) *Geanakoplos, J. (2010): “The Leverage Cycle”, Acemoglu D., K. Rogoff, and M.
Woodford, eds., NBER Macroeconomics Annual: 1-65, (* up to p. 31)
5) Malmendier, Ulrike, and Stefan Nagel. "Depression babies: do macroeconomic experiences affect risk taking?." The Quarterly Journal of Economics 126, no. 1 (2011): 373-416.
1) Koudijs, Peter and Hans-Joachim Voth (2016), “Leverage and Beliefs: Personal Experience and Risk Taking in Margin Lending”, American Economic Review 106-11, pp. 3367 – 3400
Section 3b - Financial crises
1) *Frydman, Carola, Eric Hilt, and Lily Y. Zhou. "Economic effects of runs on early “shadow banks”: Trust companies and the impact of the panic of 1907." Journal of Political Economy 123, no. 4 (2015): 902-940.*
2) Xu, Chenzi. "Reshaping Global Trade: The Immediate and Long-Run Effects of Bank
1) Babina, Tania, Asaf Bernstein, and Filippo Mezzanotti. "Crisis Innovation: Evidence from
the Great Depression." (2021).
Session 4a - Finance and Politics
1) *Doerr, S., Gissler, S., Peydró, J.L. and Voth, H.J., 2018. From finance to fascism: The real effect of Germany's 1931 banking crisis.*
2) Jha, Saumitra, Peter Koudijs, and Marcos Salgado. "Markets under Siege: How Differences in Political Beliefs Can Move Financial Markets." (2022).
3) Huber, Kilian, Volker Lindenthal, and Fabian Waldinger. "Discrimination, managers and
firm performance: evidence from" Aryanizations" in Nazi Germany." (2019).
1) Koudijs, Peter, and Hans-Joachim Voth. “Individual skill and market liquidity: Evidence
from the removal of Jewish market makers in WWII” (2020)
Session 4b - Finance and Slavery
1) Kilbourne, Richard Holcombe. Debt, investment, slaves: credit relations in East Feliciana
Parish, Louisiana, 1825-1885. University of Alabama Press, 2014.
2) Martin, Bonnie. "Slavery's invisible engine: mortgaging human property." The journal of
southern history 76, no. 4 (2010): 817-866.
3) González, Felipe, Guillermo Marshall, and Suresh Naidu. "Start-up nation? Slave wealth and entrepreneurship in Civil War Maryland." The Journal of Economic History 77, no. 2 (2017): 373-405.
4) Wright, Gavin. "Slavery and Anglo‐American capitalism revisited." The Economic History Review 73, no. 2 (2020): 353-383.
5) De Jong, Abe, Tim Kooijmans, and Peter Koudijs, “Plantation Mortgage-Backed Securities: Evidence from Surinam in the 18th Century.” The Journal of Economic History (forthcoming)
6) *De Jong, Abe, Tim Kooijmans, and Peter Koudijs. “Going for Broke: Underwriter
Reputation and the Performance of Mortgage-Backed Securities.” (2022)*
1) Radburn, Nicholas. "Keeping “the wheel in motion”: Trans-Atlantic Credit Terms, Slave
Prices, and the Geography of Slavery in the British Americas, 1755–1807." The Journal of
Economic History 75, no. 3 (2015): 660-689.