News from London: Greek Government Bonds on the London Stock Exchange, 1914-1929

Statistical analysis of Greek sovereign debt denominated in gold and traded on the London Stock Exchange from the outbreak of the First World War until the advent of the Great Depression is employed to explore the way that historical events including political and institutional changes shaped investors’ expectations of the capacity of the Greek government to honour its debt obligations. No a priori specification of important dates is made. Military defeat and its aftermath exerted a strong negative impact on the value of Greek sovereign debt. The statistical analysis shows that investors acted upon news of public debt, fiscal performance and money supply. Unforeseen political events also influenced bondholders’ expectations over future payments. By contrast, institutional innovations such as the adoption of the Gold Exchange Standard and the establishment of a central bank de novo did not produce any quantitative market response. Stabilisation and the concomitant institutional reforms however, were factored into the market price of Greek sovereign debt traded in London.[...]