Integration of International Capital Markets: Quantitative Evidence from the Eighteenth to Twentieth Centuries

The integration of capital markets is usually tested with an interest rate arbitrage model even though much different financial assets must be compared. This paper compares prices of identical assets that are traded simultaneously in two or more markets. The range, average level, and time series pattern of the differences can be used to infer threshold levels, transaction cost levels, and the efficiency of arbitrage operations, respectively.Examples are given for financial crises from 1745 to 1907, using prices from the London, Amsterdam, Paris, and New York stock exchanges. These show European capital markets to be well integrated by mid-eighteenth century.