Financial Market History: Reflections on the Past for Investors Today Paperback – December 30, 2016

Great overview of financial market history. This sums it up best:Since the 2008 financial crisis, a resurgence of interest in economic and financial history has occurred among investment professionals. The monograph, Financial Market History, will discuss some of the lessons drawn from the past that may help practitioners when thinking about their portfolios. The monograph is edited by David Chambers and Elroy Dimson, the academic leaders of the Newton Centre for Endowment Asset Management at the University of Cambridge.Some investment practitioners have long understood the benefit of learning from our financial past. For example, Russell Napier, in his book Anatomy of the Bear, and Andrew Smithers and Stephen Wright, in their book Valuing Wall Street, use financial history to inform and guide their investment strategies. Many other excellent publications would repay any practitioner who wishes to gain a deeper understanding of why financial markets have developed in the manner they have over the last several hundred years. These include, to name but a few, Niall Ferguson’s The Ascent of Money, William Goetzmann’s and Geert Rouwenhorst’s The Origins of Value, Raghuram Rajan’s and Luigi Zingales’s Saving Capitalism from the Capitalists, and William Goetzmann’s recently published Money Changes Everything.Collection of the essays in Financial Market History has been supported by the CFA Institute Research Foundation, the CFA Society United Kingdom, and others. The monograph brings together a series of chapters from leading academics in historical finance. Their shared motivation is to examine a wide range of subjects that they believe are particularly relevant for investors today.One of the major ways in which financial history contributes to investment practice is by providing long-run series of data on different asset classes. Elroy Dimson, Paul Marsh, and Mike Staunton summarize the long-run global evidence on the risk and return characteristics of such traditional asset classes as equities, bonds, bills, and exchange rates. Long-run return series span the broadest possible range of historical market conditions and are necessary for investors to understand likely future investment outcomes. Antti Ilmanen’s essay complements this analysis by examining the time-varying properties of stocks. In particular, he considers how sensible it is to make use of long-run data series to try to time entry into and exit from markets. Jan Annaert, Frans Buelens, and Angelo Riva discuss some of the pitfalls to be avoided when assembling or using historical asset price data, especially equity and bond data. The temptation to simply download historical data in modeling risk and return, without thinking about the quality of the data and the care with which return series have been compiled, is to be avoided at all costs. Olivier Accominotti discusses the returns to two common currency-trading strategies, namely, carry and momentum. The tendency is to think that modern currency trading began after the collapse of Bretton Woods in the 1970s, but the foreign exchange market first emerged in its modern-day form in 1919. It seems we were largely unaware that currencies were actively traded through most of the 1920s and 1930s. Christophe Spaenjers provides investors with a fascinating insight into other assets that can be found in portfolios of high-net-worth individuals: real estate, collectibles, and precious metals and diamonds. Much academic work has been undertaken in recent years to collect historical prices of some of these assets, and we now have a better sense of their long-run performance characteristics.Modern stock exchanges trace their origins back to Amsterdam in the early 17th century. Larry Neal’s essay considers the origins and development of the most important stock market to emerge through the 19th century, the London Stock Exchange. How the LSE chose to organize itself had implications for the subsequent innovations in the way stocks were traded. Furthermore, some of the issues raised today by the emergence of electronic exchanges would have been familiar to the stock exchanges of more than a century ago, especially concerns about the liquidity with which stocks can be traded on the exchange. Caroline Fohlin’s chapter offers a fascinating insight into how liquidity improved on the New York Stock Exchange in the early 20th century as technology improved, and she highlights how particular trading structures influence information flows and ultimately market liquidity. Carsten Burhop and David Chambers survey the long-run historical evidence about IPOs in the world’s major stock markets. Their discussion addresses whether three phenomena—underpricing, the IPO cycle, and long-run underperformance—that are observed in modern markets existed in earlier times.Stock markets and bubble episodes are frequently mentioned in the same breath. William Goetzmann reminds us that although bubbles insert themselves deeply into the investor psyche, they are relatively infrequent. He examines the frequency of large, sudden run-ups in stock prices since 1900 and concludes that the chances of the market giving back its gains following a doubling in value are only about 10%. In other words, based on the history of the 20th century, only a small fraction of stock market booms ever go sour and turn into bubbles. Eugene White provides investors with a survey of the major bubble episodes, emphasizes the particular role played by irrational exuberance, and highlights the most important takeaways for investors to consider when the next bubble comes around. Charles Goodhart notes that financial crises usually arise when asset bubbles financed through bank credit expansion run their course. Prior to the middle of the 20th century, it was often a combination of an equity bubble with bank credit expansion that led to such a crisis; more recently, however, the key interaction has been between real estate boom/busts and credit expansion. Goodhart goes on to discuss the range of potential cures for such crises that have been offered but concludes that the achievement of a financial-crisis-free economy will remain elusive.Financial innovation has been an important feature of financial market development over the centuries. Geert Rouwenhorst’s essay on early financial contracts is a reminder that not all innovative security designs survive and that we can learn from those that do not as well as those that do. Tom Nicholas’s contribution focuses on a particularly successful innovation in the United States, namely, venture capital. He describes the origins and development of high-tech venture investing in the post-1945 period and the factors that led to its success. Janette Rutterford and Leslie Hannah examine one of the most significant financial innovations in modern finance, namely, the institutionalization of securities investment via the rise of insurance companies, mutual funds, and pension funds.This monograph is not intended to be exhaustive. Much important work by other eminent scholars has been omitted because of space limitations. Furthermore, as Barry Eichengreen’s essay highlights, new frontiers in financial history are being opened up in the wake of the 2008 financial crisis. The hope of the editors is that this volume will persuade more practitioners that a detailed knowledge of the past can be worthwhile in tackling the investment challenges of the future.David Chambers and Elroy DimsonCo-editors

The book just arrived - on time - I have only read half so far - will comment later - the authors devote more attention to financial history than do many recent commentators - they should delve even further back in history

This is a well-written book about the financial market history, but it might be too much academical for practitioners.

This book is more like a dry textbook than something for a lay reader. If you're studying economic history for college, it's probably a good resource. If you are a casual observer of the economy and stock market, you can find more interesting reading material.

Great read and solid starting point for those who want a solid insight of the financial markets. You can feel confident you will have a better understanding of the history of the finance and how and why certain actions of the financial markets and trends came to pass and repeat after this book.

Nothing to complaint about, these are free. Reviews on this type of item are some what pointless. What is good for one person is not necessarily good for another person.

This much history is important to know how better to understand what the markets will go through as the future unfolds.

Buen libro tema interesante

Elroy Dimson, one of the few serious "stock market archaeologists" in the world, has done much to improve our understanding of the long-term risks of the stock market with his extensive research. A good addition to the now classic work "Triumph of the Optimists".

It really provides a clear picture of the Financial Market History.

History is one of the best teachers. This book teaches us what has or hasn't worked in financial markets. If we do not learn from history we are bound to repeat it.

Comprehensive, detailed, up-to-date compilation of global financial market information that makes for an excellent analytical resource.

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