Browsing by Author "Pulkkinen, Verneri"

The aim of this paper is to show how the Finnish stock market performed during the Second World War. The focus of this study is to show what kind of returns the stock market delivered to investors during 1937–1947 and how the Helsinki stock exchange functioned during the war. The papers ask, did the Finnish stock market react to the heightened risk of world war or, sequentially, to changes in fortunes of war. This paper also puts the Finnish stock market in comparison with the other war time stock markets in Denmark, France, Germany, Sweden, U.K. and U.S.A. This paper should be viewed as part of a growing family of studies using financial data as a main source. There are no retrospective distortions in financial data, in this case equity bid prices, giving this approach advantage compared to more traditional sources such as diaries or oral sources based on memories. The financial data determines the critical turning points as contemporaries saw them, instead that a historian determines them afterwards. The main method of this paper could be described as financial archaeology: the available financial data, namely stock bid prices in the Helsinki stock exchange is used to see how the stock market and different industries performed during the war. Investors are generally well informed citizens and radical changes in bid prices indicate changing evaluation of the war situation, thus telling how contemporaries viewed the situation form their view point. The author has also collected earnings data for companies listed in the Helsinki Stock Exchange. With this data, the price to earnings ratio has been constructed for the Finnish stock market to study the price level of the market. This study also uses dividend yields, price to nominal book values and market cap to GDP as indicators of investors perception. The efficiency of the war time stock exchange is also under critical evaluation: with no efficient market, the use of financial data is not reliable. It is concluded that based on the volume of trading and anecdotal evidence, the Finnish stock market was efficient enough to draw conclusions from the stock market data. The study concludes that the Finnish stock market reacted evidently to the heightened risk of war. The stock market reached its top in 1937 and experiences a major slump after the Molotov–Ribbentrop pact in August 1939. The stock market was closed during the Winter war, but rose afterwards till 1942 as investors looked for a safe haven against the rising inflation. The government forced heavier regulation on the stock market in 1942 and diminishing chances for the Axis to win the war became evident. Previous anecdotal evidence from the stock market bubble of 1945 is confirmed with earnings data as the stock market rose way above its fundamentally accepted value after the war. The rampaging inflation, especially after the war, effectively wiped out the Finnish stock market as the 1937–1947 total return was -60% for the whole stock market and -90% for the bank stocks. When compared to the other stock markets mentioned above, the Finnish stock market shares some similarities with the French stock market: heavy debt monetization leading to higher inflation and the escape to real values propelled a stock market boom during the war, followed by a severe market collapse and evaporation of the real values of stocks.