Markets work in war: World War II reflected in the Zurich and Stockholm bond markets

This article examines how trading on two geographically separate financial markets reflected political events before and during World War II. Specifically, we compare sovereign debt prices on the Zurich and Stockholm stock exchanges and find considerable (but not complete) symmetry in the price responses across the two markets in relation to turning points in the war, which suggests that markets worked efficiently. The use of a quantitative methodology on historical financial market data represents a useful complement to traditional historical analysis, offering large-scale evidence of individuals acting in their own pecuniary interest without producing any lasting systematic biases.